Effective as of today, merchants in forty states in the United States may charge customers who use certain credit cards to pay for their purchases a surcharge fee of up to a maximum limit of four percent in addition to the purchase price.
As the result of a class action lawsuit first filed by retail merchants in 2005 which alleged that MasterCard and Visa violated antitrust law by fixing the swipe fees — which generally averages approximately two percent of the purchase price of a typical credit card transaction — and not allowing merchants to charge a customer more than if the same purchase had been paid with cash, a merchant interchange settlement worth as much as $7.25 billion was reached this past July and included the ability for retailers to charge their customers who use credit cards by MasterCard and Visa a fee where permitted by state law.
The fees are allowed to be imposed by merchants to customers using credit cards for their purchases, except in ten states where it is against the law to do so: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
It is important to note that this settlement — as part of a brief originally filed in the United States District Court in Brooklyn — is only preliminary. The final ruling is expected to be issued by the court later this year, and various merchants are expected to challenge the settlement.
There are Internet web sites for the consumer which advise on what to expect with the new credit card surcharge fee, such as Consumer Action and know your card. Here is a statement about the interchange settlement by Trish Wexler, who is the spokeswoman of the Electronic Payment Coalition which wants you to know your rights:
A lot of money has been at stake with this lawsuit, as proceeds from swipe fees reportedly generate greater than $40 billion per year for banks in the United States.
Although reports from many sources claim that consumers should not initially be charged the surcharge fee when using credit cards for their purchases most of the time — as many companies claim that there are no plans to charge the surcharge fee — Qantas Airways introduced a surcharge of one percent to customers using credit cards after the Reserve Bank of Australia ruled on January 1, 2003 that merchants may pass on to their customers the transaction fees charged to them by MasterCard and Visa.
Hotel properties in Australia had eventually followed suit to take advantage of imposing credit card surcharges equal to 1.5 percent of the folio amount on their guests who use credit cards instead of cash — and that is on top of as much as three percent charged to hotel guests if paying for the final hotel bill in a different currency that what they use in the country in which they are based.
As of June of last year, regulators in Australia have reportedly set limits to the amount merchants can impose upon their customers who use credit cards in response to concerns that some merchants were allegedly applying surcharges in addition to the transaction costs.
In China, you can be charged as much as 10 percent in surcharges due to something known as Dynamic Currency Conversion — called a scam by some FlyerTalk members.
If you are wondering whether or not airlines will impose similar surcharges to customers based in the United States, I do not believe it will happen immediately unless all of the airlines impose the fee in the competitive commercial aviation industry in the United States. Even if they did, they must include the credit card surcharge fee in the total cost of airfare as required by a law effective as of January of last year — although the interchange settlement requires notice and disclosure to the consumer at point of entry, point of sale and on the receipt by all merchants who intend to impose the surcharge on customers using credit cards. I am not sure as to whether or not airlines based out of the United States can take advantage of the credit card surcharge fee effective as of today.
Airlines such as Delta Air Lines only accept credit cards when passengers attempt to purchase items aboard an airplane during flight — and the prices are already on the high side on many items. I cannot imagine that Delta Air Lines and other airlines would attempt to jeopardize the income already generated from the ancillary fees they already charge customers which have significantly improved revenue and profits by adding a surcharge for the use of a credit card — although I would not put it past them, either.
There are ways to bypass the credit card surcharge, which include but are not limited to:
- Patronizing a competitor who does not charge the credit card surcharge
- Purchase products and services in a jurisdiction where credit card surcharges are prohibited by law
- Request a discount, as you have nothing to lose by negotiating with the retailer
- Use a card other than Visa or MasterCard, such as Discover or American Express
- Use cash
The option to use cash would not be a popular one for many FlyerTalk members. For one thing, FlyerTalk members enjoy earning miles and points — as well as elite status — in their preferred frequent travel loyalty programs by using their credit cards. It is also easier to keep track of expenses with statements issued monthly by credit card companies. Losses incurred on credit cards can be mitigated much more easily than if cash is lost or stolen; and many credit cards offer various types of protection, such as insurance on rental cars. It is also more convenient to carry a credit card than a wad of cash which you may have to replenish by first finding an automated teller machine — especially when exchanging currency.
I can understand why merchants would want to recoup fees imposed on them by credit card companies which cut into profits and add up over time. In fact, the settlement calls for $6.05 billion to be paid to retailers, with a possible deferred payment of an additional $1.2 billion paid out over a period of eight months. However, I would not be the least bit surprised if merchants have already been including the transaction fees into the price of the products and services they offer — and I would further not be surprised if they added the credit card surcharge fee on top of that.
In the meantime, if you are charged a credit card surcharge fee, is it tax deductible? Can you earn miles and points for your favorite frequent travel loyalty programs when you pay the fee? Will retailers who sell products via the Internet impose the credit card surcharge?
I do not know the answers to those questions, but I do know one thing is absolutely for certain: credit card surcharges favor the merchants and the credit card companies, but not the consumer — especially in an economy which has not fully recovered. For this reason — as well as to remain competitive — I do not believe that most merchants will imposed this credit card surcharge on you anytime soon. In my opinion, this should especially be true for the travel industry. Keep a wary eye, however, as merchants must clearly disclose that a surcharge will be imposed on your purchase if you decide to use a credit card — and let fellow consumers know who are those merchants.