Just when you think you’re up to your eyeballs in fees here comes yet another one. As of January 27th retailers are now allowed to charge you a fee for using a credit card. This surcharge could be as high as 4% of the amount of your purchase.
The new charge, known as a “checkout fee”, is the result of a class-action lawsuit brought by retailers against MasterCard, Visa, and several large banks.
Typically, every time you make a purchase with your credit card, the retailer must pay a fee to MasterCard and Visa to process your transaction. In the past both MasterCard and Visa prohibited merchants from passing this charge along to consumers.
Retailers balked that the processing fee, which ranged anywhere from 1% to 4% on a typical purchase, cut deeply into their profit margins. This was especially true for businesses with razor thin 1-2% profit margins like supermarkets and gas stations where the fees could actually wipe out any profit at all.
As part of a negotiated settlement reached last year, merchants won the right to pass the cost of their credit card processing fee along to the consumer in the form of a checkout fee. But implementing the checkout fee is optional. Retailers don’t have to charge it if they don’t want to.
And merchant trade groups argue that most retailers won’t implement the new checkout fee for fears of losing customers. Studies also show that consumers spend more when they use credit cards, another incentive for retailers to hold back from charging the new fee.
But others aren’t so certain. Years ago few predicted sky-high ATM fees. They claimed, in a similar argument with the checkout fee, that competition would keep banks from implementing excessive ATM surcharges. Experts also point to Europe and Australia where credit card checkout fees have become ubiquitous and a major source of profit for retailers.
Consumer advocates claim merchants have been actually passing their Visa and MasterCard processing fee along to consumers for years in the form of slightly higher prices. The fee is reflected in the few pennies more we pay for our stick of butter or gallon of gas.
It’s highly unlikely that these same merchants will suddenly lower their prices as a result of the new settlement, meaning consumers could get charged twice for the convenience of using credit cards – once because prices already factor in the merchant’s credit card processing fee, and twice if the merchant decides to charge a checkout fee.
To ensure you don’t get blindsided, retailers must post clear signage near store entrances and at the point of sale informing you that they are charging a credit card checkout fee. In addition, disclosure of the checkout fee must be printed on your receipt.
To further inform you of your rights, the consumer advocacy group Consumer Action has created an online pamphlet explaining the new credit card checkout fee in detail.
There is good news. Despite the new settlement, credit card checkout fees are still illegal in ten states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
With sky-high credit card interest rates and potential new checkout fees, using cash is starting to look more attractive.
BMWK — Do you think merchants will start implementing the new credit card checkout fee? Will you continue doing business with retailers that charge such a fee?