You may have to adjust your relationship with your rewards credit cards that earn you cash back, miles or points on every purchase, as each transaction could soon come with an extra cost.
A new legal settlement between Visa, Mastercard and merchants marks the latest chapter in a two-decade battle over credit card processing fees.
For years, merchants had to play by an all-or-nothing rule for Visa and Mastercard — accept one card, accept them all. It didn’t matter if it was a basic card or a premium rewards card with higher processing fees.
That’s changing under the proposed settlement. Merchants could decide which types of credit cards they’d accept — commercial cards for business expenses, premium cards such as rewards cards and basic cards without perks.
Merchants could also add surcharges of up to 3% when you pay with certain credit cards. So a $100 dinner would cost $103 if you use your rewards card instead of cash or debit. And if you’re earning 2% cash back, you’re losing money. You’d be paying $103 for $100 worth of food while earning just $2 back.
And premium travel cards with annual fees exceeding $500 might become harder to justify if merchants regularly add surcharges that eat into your rewards earnings. Those rewards cards typically carry higher interest rates too.
The fresh appeal of cash and debit
For decades, credit card users have enjoyed earning rewards while everyone else subsidized those perks through higher prices. Cash-paying customers have been getting the “shortest straw,” as Doug Kantor, an executive committee member at the Merchants Payments Coalition, described it to CNBC.
But if surcharges become common, a debit card or cash payment could save you 3% at checkout. So check the surcharge rate, and when it exceeds your rewards rate, use an alternate payment method.
What to watch for at checkout
The settlement still needs court approval, and the last attempt was rejected. But start paying attention.
Look for signs at the register or notifications during online checkout about credit card surcharges. Some merchants might post different prices for cash versus credit purchases. Others might add the fee at the final payment screen.
Don’t expect every store to reject rewards cards outright. Since nearly 90% of credit card spending happens on rewards cards, according to industry data, most merchants can’t afford to turn them away entirely.
Premium cardholders might face the biggest adjustments, as these exclusive cards often carry the highest processing fees for merchants. Platinum cards may be less welcome at smaller businesses or face the steepest surcharges.
Keep multiple payment options handy. A rewards credit card for merchants who don’t surcharge, a basic no-fee card for those who charge less for standard cards and cash or debit for everyone else.
Pay attention to category bonuses that might offset surcharges. If your card earns 5% back on restaurant purchases this quarter, a 3% surcharge still leaves you ahead. But that same surcharge on a 1.5% cash-back card means you’re paying to use plastic.
Credit card companies won’t surrender the rewards arms race without a fight.
Expect strategies to keep you swiping, such as special introductory offers, like this one that has a 0% interest through 2027. Taking advantage of offers like these is a smart way to make sure you’re not adding to debt as you learn to navigate a new landscape of surcharges.
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