Up next: Credit card checkout fees

Beginning Sunday, merchants will be allowed to charge a fee for accepting MasterCard and Visa. It remains to be seen if they will.

By MSN Money Partner Jan 22, 2013 11:51AM

This post comes from Beverly Harzog at partner blog Wise Bread.


Wise Bread logoWould you pay a fee to use your credit card? I don't even need a nanosecond to answer this. My response is: No freakin' way.


CreditCard © Tara Moore/Getty ImagesHere's why I'm asking the question. Last summer, there was an antitrust settlement between merchants and Visa, MasterCard and big banks about credit card interchange fees. These are the "swipe" fees merchants pay to the networks (like Visa) to process your payments when you use your card. 


The settlement called for merchants to receive $7.2 billion in cash and temporary reductions in interchange fees. This settlement also gave merchants the legal right to add a "checkout fee" when you use a credit card to pay for purchases. These fees could start popping up as soon as Sunday.


How to know if a checkout fee will be charged

Merchants can't sneak in the fee without telling you upfront. They have to disclose that you'll pay more for using a credit card. So if you're in a store, look for notification at the entrance or at the register. When buying an item online, look for the checkout fee to be disclosed on the homepage of the business.


Retailers are allowed to charge a fee that's the equivalent of what they pay for the interchange fee, which is between 1.5% and 4%. I was kind of surprised to find out that merchants can add a surcharge of up to 4%. You know, that's a lot.


Competition is your friend

OK, so the settlement gave merchants the right to ask customers to pay a surcharge if they use a credit card. So they have the right to do it, but does it make business sense for retailers to charge a checkout fee?


I say no, it doesn't. I'm pretty sure a minority will try it out and see how it goes. If you use your credit card to pay for a $200 purchase, you could pay up to $8 just for the privilege of using a credit card. And if you're using a rewards card, paying an extra fee lowers the value of the rewards.


At the end of the day, we're all smart enough to do the math and choose the retailer that gives us the best deal. So I think competition is one of the reasons we won't see widespread checkout fees, at least not right away.


Also, other than price, customer service is often the best way for competitors to differentiate themselves. Retailers that don't charge their customers a checkout fee will look more consumer-oriented.


If you think about it, the only retailer that can probably get away with it easily is a store that offers something so unique that there's limited competition. Maybe if that were the case, you wouldn't even care because, for whatever reason, you really needed that specific, unique product.

Will credit card rewards be an endangered species?

Rewards credit cards tend to have the highest interchange fees, so there's speculation that credit card issuers might devalue rewards programs to save money. I doubt this will happen because this doesn't make sense in terms of profits.


Banks make a lot of money from rewards cards. Sure, they give cash back or help you earn free airfare, and that costs the issuer some dough. But rewards cards also have higher interest rates and many consumers routinely carry a balance. If banks decrease rewards, cardholders will lose the incentive to use them. If that happens, banks will lose revenue.


Now, banks don't normally sit around and accept their financial fate. So we could see annual fees inch up or interest rates on rewards cards go up a tad. But I don't think any changes will happen right away.


Also, this isn't a done deal, so trying to predict what will happen with any accuracy isn't possible at this point. There's more legal wrangling ahead.


Reasons why this isn't over

The agreement between merchants and the different payment networks is inconsistent (I almost used "convoluted," which also seems accurate). Visa, MasterCard, Discover and American Express all have rules that merchants have to follow.


Even though merchants can now charge a checkout fee for Visa and MasterCard credit cards, there's a problem if they also take American Express cards. American Express' agreement does not allow merchants to add a checkout fee, and they aren't part of the settlement. The irony is that American Express cards have the highest interchange fees of all.


Another reason it's way too soon to predict the future is because the merchants themselves aren't happy with the settlement. Big-time retailers such as Target and Home Depot aren't on board with the settlement. There are many details to the agreement that go way beyond the interchange fees, and this is why the outcome could remain up in the air for a while.


Just say no to checkout fees

The credit card checkout fee is actually banned in these 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. If you're not in one of these states, keep an eye out for this fee when you buy something. And if you're faced with a checkout fee, simply vote with your wallet. Spend your money with a vendor that isn't charging this fee.


And keep in mind that, according to Consumer Action, checkout fees are only allowed for credit cards and charge cards. You cannot be asked to pay a checkout fee for using a debit card.


More on Wise Bread and MSN Money:


Jan 22, 2013 1:02PM
Of coarse the retailer can and eventually will just add the 4% to their bottom line and include the fee in each price tag in the store. The end result is that they will make even more money because the fee will be added to all purchases regardless of method of payment. They are not stupid and all of them will find a way to bump the prices up and blame it on inflation, labor costs, material costs and freight bills tied to fuel cost increase. The bottom line is that the settlment did not protect the cunsumer. What about the banks getting cheap money and then charging credit card users18-30%. That is where the real ripoff is.
Jan 22, 2013 1:57PM
I don't have a problem with letting a cartload of groceries sitting on their checkout lane and walking away because of a fee. Let the greedy retailers spend labor dollars putting the stuff back on the shelf.
Jan 22, 2013 2:04PM
How long have credit cards been in use? You cant tell me that the swipe fee is not already added to the price of every product that goes through a store that excepts credit cards. The people that dont use credit cards are probably paying for it already. Stores have to figure out all costs of a single product and add that into their price including even how much space is used for that product. You cant tell me that a 1-4% swipe fee that is charged from the cards is not figured into their bottom line already. If they were to charge it again they are just ripping off the consumer. That would probably be why it is illegal in the ten states.
Jan 22, 2013 1:02PM
I'll have to start carrying my checkbook.  Then, I suppose, they'll start charging to process my checks.  Then, perhaps, an entry fee to get into the store?
Jan 22, 2013 12:48PM

I'm sure online sales won't be impacted as credit cards are really the only choice when paying! If they do add this fee, I'll go back to retailers!!

Jan 22, 2013 1:07PM
I will pay cash or check .. Its that simple..
Jan 22, 2013 1:10PM

They will not say you are paying a fee to use a credit card, they will instead give you a discount for using cash. Same thing, but much easier to sell as most folks will not even realize they are paying a fee.

Jan 22, 2013 1:24PM
Banks get it for free from us and we pay x4 for every dollar created. Cash is King. Stop using credit cards pay cash and let them sit on there useless dollars.
Jan 22, 2013 1:27PM
Using cash for purchase has many benefits, like you know what you are spending. Now there is one more :)
Jan 22, 2013 1:43PM
In my town, many merchants no longer accept checks so you have to use cash or card.  Who wants to carry a pocket full of cash? I never carry a balance on my card so it is like cash for me and much more convenient (don't have to pay ATM fees).  Plus, with a card purchase, you always have a receipt.  This system is another way to rip off consumers and retailers wonder why people hate them.
Jan 22, 2013 1:23PM
If its illegal in New York, why are gas stations allowed to do it?
Jan 22, 2013 1:40PM
I rarely pay to use a card to buy gas, I never pay extra to use a CC for payments now (they call it an electronic  convenience fee) and I will never pay a fee to buy anything with a CC. There will always be somewhere else to go. And there is always cash.
Jan 22, 2013 1:14PM
I think most retailers have already upped their prices to cover this cost, and if the surcharge at the redister their just adding most....I will be looking for those that give cash Discounts and shop at their stores....
Jan 22, 2013 1:15PM
I wonder about the airlines. Most of us pay for plane tickets with credit cards.
Jan 22, 2013 1:17PM
Well it's time to dump your credit card spending. Get rid of your cards A 4% fee is about the last straw, when it comes to greed Retail prices have been climbing out of sight for the last few months, food clothing, hardware, building materials,paint, and medical supplies are all out of control. If you pay one penny of a service fee for the use of a card,  you just better go out and find a second job because you will not make it till next payday. so remember if you pay a fee get rid of the card.  You should also keep an eye on your banking fees, it seems they are making a lot of changes with no customer notifications. If you find a surprise charge on your account. get your money out of that bank or credit union real fast.... ALSO SHOP AROUND FOR THE BEST GAS PRICES. THEY DON'T KNOW WHAT TO DO WITH ALL THE SURPLUS. 
Jan 22, 2013 1:17PM
So merchants will raise EVERYTHING by 4%.  Six months from now there will be a "surprising" uptick in inflation that will be used to say the economy is recovering.  Uh huh.
Jan 22, 2013 1:52PM

Many business owners don't know that they can shop around for lower credit card processing rates when their contract is up for renewal. 4% on a credit card transaction can be high if the card is swiped through a machine.

Jan 22, 2013 1:52PM

On all U.S. currency is written "This note is legal tender for all debts, public and private"

When someone charges me for paying them, for my debt, with cash,  my attorney will meet them in court.  What they do with Credit Cards is not my problem.

Jan 22, 2013 2:37PM
The retailer already added the interchange fees to the price of his merchandise years ago.  In fact he added the cost so long ago he forgot.  People have, in the recent past, asked for discounts when paying with cash because of the interchange fees already built in to the price of merchandise.  It's just another scam to increase profits without providing either service or product  while telling you it's the other guy;s fault.
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