Smart SpendingSmart Spending

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 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.
Jan 22, 2013 2:37PM
Higher bank fees , higher credit card fees. Dodd frank is working like the people that wrote it wanted it to.Making the big boys money of everyone else
Jan 22, 2013 2:27PM
Just goes to show, when you "sock it" to the businesses, it's us little guys who actually end up paying for it.
Mind you, you are to do this while receiving 0% on your savings.  I only ask one thing:  are you insane?  Pay cash.
Jan 22, 2013 2:12PM
Consumers should simply stop using the cards until the CREDIT CARD companies quit charging the usage fee to retailers. It's not enough that they already take 12-24% of any balance carried? 24% is legalized loan sharking. It's absurd consumers have to pay them to use the card.
Jan 22, 2013 2:08PM
I live in one of the states where the fee is illegal, but I would walk away from a purchase if the charged me a fee. I think either way we will be paying for all this greed anyway in higher retail prices. Remember the retailer isn't going o loose money, so they will find a way to pass it on.
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 2:03PM
As a small business owner (wholesaler), I have had to refuse customers willing to pay the cost of my accepting their credit card, because I signed a contract stating I wouldn't - even thought the practice has been going on under the CC companies' noses (they don't really care as long as they get paid) for years.  I cannot afford to give up the 2%+ profit for taking a card when my margins are sometimes single digits.  All I can say is ABOUT DAMN TIME. 
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 1:52PM
Your article is not true, in Idaho, the gas stations have a cash price and a credit charge price. To add insult, when using cash you have to go inside to pay, and stand in line. The gas stations are doing fine, and I doubt  majority of the customers are using cash. The majority of the people are not going to change their purchase habits. You all may as well get used to pay more for your privilege to use your credit card. If the majority of the credit card users would stand up and say, we will not use your credit card, and perhaps to threaten to cancel your card, those fees would disappear. The credit card companies make millions of dollars on interest charges for the people that carry a balance. They should be the ones to do away fees, not the card user. I guess my point is, we will pay the price for the convienence to use our credit cards. So get used to it.
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 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
This is long overdue.  People need to understand what credit cards actually cost retailers.  You'll see competition among the card providers for lower fees once consumers are forced to shop around.
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 1:40PM
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 1:39PM
If the merchant is getting charged a fee by the credit card companies, why shouldn't the consumer pay.  The consumer chooses the bank they want for their credit card.  The bank sets the fees that the merchant has to pay.  If you do not like the fees then pay with cash or check.  As a small business I accept credit cards as a convenience but with the monthly fee and per transaction fee I pay about 10%.  Stores are not passing on the fees to make more money, but to loss less.
Jan 22, 2013 1:39PM

I hope this is plainly posted ahead of time.I use the credit card for everything because

of all the rebates.I wonder if it`s true with debit cards also.I don`t care to walk around

with $1000 on me like some fools.

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 1:24PM
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 1:23PM
If its illegal in New York, why are gas stations allowed to do it?
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.