Surging credit surcharges in the US (2019 - 2023)?
 

I appreciate the latest SUB offer or new card rebate program thread like anyone else, but I saw my first, not handwritten surcharge sign on credit card surcharges recently. I am unsure if this will become a trend. I know we have some/many people who say that they would stop patronizing businesses (most are small today?) if they started charging extra to use their reward card, but I am unsure if that type of boycott is really effective. It is also important to remember that the 2013 legal settlement that caused the change of surcharge rules at the network level were driven by the big merchants (Wal-Mart and the related). Even if they have not yet done the surcharge implementation, I feel somewhat confident it just takes one of them to get away with it successfully for everyone to follow. We have seen this with the airline miles programs every time.

More important though, I am going to go even further and say that if surcharges were widely implemented soon after the settlement (for most parts of the country) or in some key states (California no longer enforces its no surcharge statute), all of these millionaire bloggers and much of the big miles ecosystem may have never happened because I don't think you could have created enough revenue incentive to pay all of these referral fees and bonuses. There just would not be the card volume today, and we would be a society of mostly debit/cash/ACH/check customer (like it used to be).

Surcharges have been a bit of a pain for awhile. In some cases, it reduced card options (Costco is most famous, but merchants not taking AmEx or Discover is very common). It was mostly smaller merchants, true. The most visible, frequent used situation was gas stations with dual cash and credit pricing. Yes, I avoided these stations for the most part, but did buy gift cards if I wanted to use one (Safeway gas comes to mind). The handwritten signs are most famous. Salons would ask for an extra $1 which might equate to 1 to 1.5% surcharge. It would be up to me especially if I knew this was the location policy.

There are some other merchants where it was expected or allowed. Taxes (federal/local) would charge something +/- 2% which was barely okay with some of the better rebate/points cards. Other entities like schools also had those situations. Again, I either would be okay with it or send a check/ACH payment. In all of these cases though, the surcharge with itemized and disclosed before I entered my card info.

Some online merchants have done incentives to encourage cash deposits or gift card purchases (which have a pretty high breakage/unredeemed rate) like Uber, Amazon, Disney, Southwest and others.

It is more a crystal ball to the future of these reward cards. Maybe high AFs will work to keep the benefits, but if each time I used the card I have to consider the surcharge, I am not likely to use that card (especially when the surcharge is above 2.5%). Maybe I can get away with the large places I visit (hotels/airlines/big stores) who will likely negotiate the best rates to continue taking my card without an extra charge, but if everyone only used their card at Costco (for example) or only in EU (which has a very low regulated fee) and didn't have a mix of other merchants (or pay interest/other fees), they would need to reduce the amount of rewards offered on spend. We may have forgotten the surcharges that were very common in EU with online airlines and large retail chains before the regulation. Australia is pretty bad when it comes to large hotel chains and other services (walking across the street from a Marriott in Sydney to get cash at the ATM to pay my checkout bill was best option).

Here is the sign in question (merchant is running an Elavon system - this is one also offered by Costco to its business members):
https://cimg5.ibsrv.net/gimg/www.fly...730cac9209.png
Surcharge notice posted.

The sign does attempt to follow all customer notification rules, and the surcharge is handled by the terminal automatically. It is not "added to the total" by the merchant. It creates the line item detail (as required) which is pretty rare among POS terminals. This also means the merchant doesn't decide what is debit or credit, the terminal makes the call.
Elavon's surcharge info site: https://website.elavon.com/cbsettlement.html

What happens with more merchants to push back on this cost of business is unclear, but I personally feel because you have newer situations where very large populations (California government) are not going to pursue such surcharge "violations", it really opens the door. I expect any other state that has such statutes currently enforceable to also get them ruled as invalid by federal courts. Of course, the marketplace may limit how much surcharging actually happen, but perhaps I felt the same about the usefulness of airlines reward programs. I don't think we have seen any good news overall in those program changes.

Discover had cash back rewards back in the 1980s and is arguably the first card to have done so. Given that they weren't targeted towards travelers like AmEx was/is, I feel like they would have reduced rewards/interchange a lot more* long before now if it impacted acceptance that much. In addition, I'm pretty sure Visa/MC were commonly accepted in the US at least as far back as the 2000s, but probably not used as much for smaller purchases.

As for the prevalence of surcharges, I don't feel as if they've gotten that much more common. I only know of one merchant that imposed surcharges recently around here, for instance, and that one previously had a hard $5 minimum (and IIRC was cash only when I was in college back in the 2000s). If anything, minimums are more common among stores in general, with surcharges only really being an accepted thing for gas stations.

That all said, it's possible that a larger retailer or few imposing surcharges may end up contributing towards their acceptability among merchants/customers in general--especially if they properly follow all of the card network rules surrounding them. My main complaints with surcharges are that the smaller stores that impose them almost always impose them for all cards and not solely for credit cards, followed by surcharging more than they're likely paying (for instance, the 10c card fee on a typical vending machine transaction at my work is more than the allowed 4%).

* Assuming they did. All I know is that they may be as expensive as Visa/MC is now (or slightly more), but definitely less expensive than AmEx.

These merchant surcharges are wrong. Either accept it as a cost of doing business or go back to cash only.

Agreed. In a physical store if they tried adding 3% at the cash register I would just walk out leaving my purchase sitting right on the counter. ....and I would never return.

This is what they have done for decades due to the prohibitions on surcharges. Every cost of business is passed through to customers, which means everyone is paying card transaction fees.

For large merchants, allowing surcharges is not about collecting them, it's a structural change which allows them to negotiate lower fees because they have the option to pass through variable fees from high priced networks. Instead of announcing that they will "no longer accept" a particular type of card, the merchant can announce that there "will be an X% surcharge to pay with" those cards. It will transform negotiations between merchants and networks, and while there will be some public grandstanding much of it will be invisible.

Beyond the gas stations in California and utilities/government agencies that contract with a third party to process payment with a processing fee, I do not see much cash price/credit price going on. If I went to a merchant that was surcharging 3% on top of the cost I would look at the prices they were charging and make a decision accordingly. If a business surcharges, I expect it to offer a lower price for its products. I expect if Starbucks with no surcharge is $5 for the coffee that the local place who is surcharging 3% is 4.85 or something along those lines. If they are charging the same $5 as a place that does not surcharge, I may or may not purchase today, but I definitely would not purchase in the future.

I go to a grocery store that recently imposed a $5 minimum purchase policy (small ethnic store). Sometimes I would go in and only spend $3 or $4. I went yesterday. I found $2 of items I wanted and also saw a third item at $1.49 I wanted. The $1.49 item was from their bakery and it is going to be a total loss at the end of the night when it sits there unsold. There is no way they are better off not making this sale than paying the card processing cost. Due to the card minimum, and not wanting to deal with coins as change, I did not take the $1.49 item. I simply took the $2 of items to pay, gave them easily $2, and left. Based on this and some other factors including far less traffic at this store than a similar nearby ethnic competitor, I expect this business to fail soon. They may think the card minimum is somehow helping them but it is not.

As the owner of a small business (albeit not located in the United States), I think these kinds of practices are in poor taste.

It's important for me to impart upon my clients a sense of value, as well as simplicity and transparency in understanding their transaction. Imposing a surcharge achieves neither of these.

A couple of thoughts on the card minimum issue. First, if the merchant processor charges a per transaction fee plus the percentage (very common), I think a small card minimum ($5 to $10) is very acceptable to me versus a surcharge (again, to avoid a surcharge issue). The minimum for credit (not debit) is allowed to be set by the merchant at $10 in the US (not overseas). I think it is a bit too high to capture smaller transactions (lunch, etc.), but that is what the rule was set.

Now, Visa's contactless campaign is pretty specifically focused on small transactions. They are trying to pickup small transactions that might have been paid for cash before. That isn't our crowd, I know. Any of these minimums and surcharges will just push people back to debit or cash I believe.

If I am spending $25 (which I was at the merchant who had the 3% sign), I think covering 75 cents of transaction cost shouldn't have created a need for a surcharge. I did use my debit in this case just to see how the terminal handles it (as well as avoiding the fee). Now that merchant processors are doing a much better job of explaining the process for doing these surcharges and appearing to program the terminals to handle these, we shall see what happens. To have Worldpay and Elavon talking surcharge much more openly means bad news some way, surcharges or it may mean some sort of interchange relief to come to the high tier reward cards acceptance. That will mean reduction in benefits or rewards to cardholders....

I am going to call this particular high priced hot dog stand ($2.50 for a hot dog) and tell the owner that charging 4% on top of everything else is the end of my visits. I refuse to have a 25ish bill go up to 35ish. He added some other fees on there too. If he has the attitude it stays I go. If he sounds like he cares, I may not.

Based on the previous comments, it seems that surcharges aren't well liked if the choice is using cash or paying them to use any card. However, would people be more okay with them if the choice was cash, debit card or paying the surcharge to use a credit card? Most people do carry at least one debit card around, after all, so there'd be less of a need to go find an ATM to avoid a surcharge. Plus, there are segments of the population that prefer not to use credit, so doing surcharges correctly might not cause certain stores to lose many customers (if at all).

Of course, the difficulty with that is that some stores have to pay the same 2.5-3% regardless of the type of card (e.g. every merchant that uses Square), so there might not be any value in trying to differentiate. Which is probably why the places that do surcharge in my experience do it for all cards.

There is a restaurant near me that imposes a flat surcharge per transaction, rather than a percentage.

I was actually shocked at a souvenir store in Slovakia to see a 50 Euro credit card minimum! On top of that, when I tried buy an item with cash, the clerk refused to accept my banknote because someone had scrawled on one side with a ballpoint.

This practice is growing rapidly in New York City, especially at bodegas and restaurants, particularly in Brooklyn. I think there isn't much of an outcry yet because the rules are unclear and inconsistent throughout the country and across card types. People just don't know what to say to a merchant who violates them. I was stung at a store in Brooklyn a few weeks ago and it was a flat amount -- 49 cents, I think, on a charge of $14 and change. My card had already been run and I noticed the sign among countless others as the receipt spit out. I protested and the person in charge gave me $15 in cash and told me I could take my business elsewhere (which I did, happily). I appreciated the inadvertent small MS success, but had I been given proper notice? I see from Visa's rules linked to in the wiki that there must be a sign at the point of entry. Perhaps there was one and I missed it, but I didn't know that stipulation.

It seems that in New York a surcharge can be levied only if the amount is displayed in dollars and cents along with the cash price, but it's hard to imagine that happening. I just don't think I'd ever pick up a restaurant menu and see two price lists. And countless small grocery stores don't display prices at all for certain items. When a merchant complies with Visa's rules but not with New York's, to whom do we complain? What do we do when there's no person present, as in the case of the vending machine's 10-cent surcharge noted above -- call the supplier or the card issuer? Is it worth it for ten cents?

We need a clear best procedure for reporting and rectifying these incidents, just as we have one for DCC. And I'd report a DCC of ten cents. But the rules for DCC seem much clearer and the violations much easier to dispute.

Seth

These things tend to happen geographcially. Thus, they sprout up in a neighborhood or a town. Bottom line is that consumers don't have much of a choice.

The flip side here is that the transaction fees are never "free" they are simply included. Means that cash customers are supporting CC customers and there are many cash customers who will be quite happy as this practice spreads.

I remember places doing this about 15 years ago and for some reason it disappeared, almost overnight. Now it seems to be a California phenomenon reaching out all over the rest of the country. Not really sure what's brought this back...

One thing I will say, all these "business people" want to throw a fit over accepting cards and then will complain they are losing business to Amazon. Well Amazon accepts credit cards without an issue. If you're not going to run your business right then you've got no right to complain when customers leave and don't come back.

I think part of the reason why it's more of an issue in larger cities, is because there are enough people who will go into a store for the first time along with some who will deal with it anyway, which makes it worthwhile enough. In a smaller town, discouraging customers doesn't end well for the business.

NYC has always had a reputation of being less card friendly than most other places in the US. It's just in the past, a lot of places could get away with being cash only (vs. now where it's much harder if not impossible). I don't think there's been any real change in what merchants there think of cards, just an acknowledgement of market reality and taking advantage of the rules anywhere they can.

I feel like the complaint forms linked in the thread's wiki (or well, Visa's anyway) are fairly clear as to what constitutes a rule violation. In short, any extra fee that works out to >4% of the purchase price and/or surcharges imposed for debit cards quality. (There are also specific notification/signage requirements, but I consider those lower priority compared to the previous two issues--not to mention that reporting a merchant for not notifying Visa or MC before beginning to surcharge is problematic for obvious reasons.)

About that...

(Granted, they're not likely to stop accepting cards and/or restrict their use any time soon, but it does show they're interested in cutting back on their interchange fees. And who knows, if the vast majority of their customers do eventually decide to buy stuff online via ACH or something, they might be able to justify surcharging the rest.)

Um ....

Amazon can dictate the CC terms because of their size, the bodegas and other mom and pop businesses .... not so much.

I charged 86 cents at Kroger the other day because I did not want loose change form a dollar, but those kind of transactions can cause some harm at small businesses IMHO.

It's a brave new world, and heaven help those trying to compete with Amazon ....

If Kroger has to resort to no longer accepting Visa at some of their brands (not to mention Walmart killing Visa support in Canada for a bit), I'm not sure there's as much leverage as people think. Otherwise, I imagine it would have been resolved long before it got to that point.

IMO, Costco is probably one of the only retailers that has that kind of leverage--and in exchange, they don't accept any credit cards other than Visa.

Oh, the big guys surcharge all the time too, we just don't see it that way.
 

Yeah, so is it true that these 5% RedCard/Amazon type card savings (the new Capital One/Wal-Mart card has a much higher rebate for the first year when you use it within Wal-Mart's payment app) are really the same as a surcharge? It actually is worse because it means the cash/debit customers pay the higher listed price as well as credit customers of all other card types are paying a surcharge to these retailers. I can't say I feel these retailers are adding 5% on sale items, but for non-sale items, possible. I think Target has also been running promos doubling that to 10% which is pretty significant amount if you can stick to buying grocery and other low margin basics.

Seems fascinating that we are happy to tell it to the small guy who adds it at the register, but we gladly patronize these large chains that have been effectively surcharging for a few years now via their branded/co-branded cards. The co-branded payments are effectively ACH payments because you can't pay those cards via any other cards without fee. I won't even get into the conversation about those who are not paying off their balance monthly.

I doubt Target, etc. are paying 5% to accept regular cards though. In fact, they're likely paying at least slightly less than what merchants normally would for higher tier cards by virtue of their size. Not to mention that larger retailers in general are more likely to try routing debit cards on networks other than Visa or MC, resulting in even more savings.

What offering such a reward does do, however, is increase loyalty among its customers. More people purchasing more often can easily result in making up the 5%, especially for products that command higher margins.

Accept it as a cost of doing business or go back to cash only.

Let's face it the churners/card users have been subsidized by the cash & carry customer, and the balance carrying customer for a long time.

I've enjoyed that, but eventually someone notices and is demanding an adjustment.

If places are kind of ...... about card surcharges, I try to avoid them eventually.

My experience is that monopoly providers are the only ones who can behave this way.

As someone with a business that pays six figures a year in merchant fees, I feel this pain.
It's the salary of two decently paid people. So, I have two less staff for the privilege of taking cards.


I also know the flip side: as every trip around the world I do is in J and basically free, because of the millions of points that stack up from paying our vendors in credit cards.
One of our larger vendors (who runs our cards for maybe $400k a year?), stopped taking credit cards last month.
Or, I can pay them, but it's 2.75%.

I don't like that, but, I'm not going to take my business elsewhere.
I think most businesses realize that losing ~3.1% annually on millions of dollars of transactions is a big enough hit where they need to adjust.

it's complicated times, and I think more people will do surcharges, and then discounts if you pay debit/cash.
It's real money we're talking about here annually for us. Not $100 or $1,000 or just $10,000

--
I also love all the fake outrage by coffee buying customers.
Listen, if you leave a store and never come back because they charge you 3% more... the store doesn't want you there in the first place.

It will be interesting to see how this plays out. For too long, cash-paying customers have been subsidizing credit card customers, because of the fact that the credit card networks have monopoly power and could essentially set the terms. Now, due to a combination of lawsuits and legislation, that is changing.

If surcharges become common in the US, I think they will be limited to low-margin retailers. Currently, they are often found at gas stations, which is a very low-margin business. Perhaps discount supermarkets like Aldi will start surcharging, but I don't think department stores or high-end restaurants will do it since they have a comfortable profit margin and not upsetting customers is more important for them.

As for rewards, the game will become more complex. If the merchant is in a 5% category, or the purchase produces miles/points that the customer values highly, then paying the surcharge may be worth it. This could create more opportunity for those who are able to find the loopholes.

Merchants got the right to impose them almost a decade ago and yet they still aren't all that common. And it's not like major retailers don't have the resources to, say, ensure that they only occur in states where they're legal. Considering how long interchange has been an issue, you'd think more would be eager to discourage CC use.

OTOH, a merchant does have to notify the networks before imposing surcharges, which could trigger backroom dealing that ends up preventing them from taking effect. Plus, even if they did impose surcharges anyway, they're limited to 4% or the merchant's actual cost, whichever is lower; it might not be ideal for customers to know exactly what the merchant is paying (especially if the ultimate goal is EU-style interchange caps or outright bans on interchange).

I understand that merchants have to pay CC fees, but aren't there benefits to accepting them? First of all, you get broader audience. The what about protection: what if someone paid with fake currency or a bad check? Aren't you SOL if that happens? With a credit it's a bank's problem, right?

Yes, but absent robust price competition some merchants think the amount of the fees exceed the value. I have not seen anyone argue that card fees should be zero, only that merchants should be able to negotiate to bring costs in line with value. ONE way to negotiate is to pass along the cost to customers and steer them to lower cost payment methods. This isn't an all/nothing choice, it's opening up a market that has been artificially constrained by regulation and contracts that were accepted only due to duopoly power.

I'm not sure the available alternatives are all that much better for the merchant. From what I can tell, they are the following:

• Debit cards:
  • Customers could still use a debit card from an issuer not covered by Durbin (which could result in significant costs to the merchant, though likely still less than with a CC).
  • Merchants may still end up paying the same as running a CC, depending on their processing agreements.
  • Customers could still chose to run a debit card "as credit" (unless the merchant specifically blocks this, but customer backlash is possible since people in the US expect to be able to do it).
  • Merchants won't be able to recover their costs due to the above thanks to Durbin/card network rules (though the ones that surcharge don't particularly seem to care about that rule IME).
• Cash:
  • Increased cash handling costs (though potentially not by much if most customers are already paying with it and/or if the business is small enough).
  • Increased risk of cash-related crime (depending on the business and location).
• Checks:
  • High risk (having to wait for payment to clear, etc.)
  • Increased checkout time.
• Retailer-specific payment apps:
  • "App fatigue" impeding adoption by customers.
  • Requires good UX design (to keep customers using it) and/or customer incentives (to get customers to use it in the first place).
  • Many still allow use of credit/debit cards (though there are ways to reduce the impact, such as Starbucks' loading money onto GCs and thus reducing the number of transactions).

On the other hand, perhaps those alternatives are perfectly okay (at least in the short to medium term) if surcharging does bring about the changes merchants desire. Assuming customers end up ultimately okay with surcharges, of course, which is in no way guaranteed.

Thanks for the link up top. I had an issue with a black car service in New York. I got hit over the head for $7.50 in a card surcharge (on a ride quoted as $65 to start with and then hiked to $75 because of the toll into Manhattan...as if the toll was a surprise, and he passed on more than the "actual" toll anyway). Suffice it to say, I've dropped a little complaint in Visa's inbox.

tmiw However, cash does allow for tax shenanigans (particularly if the owner is prepared to simply not deposit all of the cash in the company's bank accounts). It really isn't implausible for an all-cash business to under-report revenues by, say, 1-2% and blame some mix of shrinkage/waste, shoplifting, and the like...which can suppress stated/taxable profits significantly.

This is actually one of the problems Italy has been fighting with (and why the governments in many countries are pushing electronic transactions as much as they are). I remember reading a story (I think it was in the New York Times, but could have been the Washington Post or the Wall Street Journal) about problems with merchants adding 10-20% if you wanted a receipt, something that was taken as a clear sign that they weren't remitting VAT if they could help it. I would not be surprised if this was at issue in New York as well (given the near-10% city sales tax).

Sure, but there are ways of proving that underreporting is occurring with "cash intensive" businesses. (The IRS even has an entire guide about it.)

Of course, in countries that have issues collecting taxes in general (or if the underreporting is low enough to avoid audits), electronic payments do make things a lot easier.

New Zealand has significant differences vs. the US (for one thing, most debit card interchange is capped in the US regardless of routed network) but this might be a cautionary tale for us--especially if contactless gets popular and ends up triggering more CC usage as a result.

https://www.newsroom.co.nz/2019/10/07/846601/banks-on-notice-over-no-paywave-dysfunction-1

Reading those tons of information about surging credit surcharges in the US keeps me thinking about the effectiveness of this program. What do you think?

It can only really work to lower interchange if most/all merchants surcharge. As it is, it'll probably just anger customers (possibly even if it's done to the letter of the card networks' rules). After all, how can all the other stores take cards without charging extra but this particular one somehow can't?

Accepting credit cards provides value to merchants as well. Increased sales volume, larger purchases per customer on average, impulse purchases, faster checkout, less cash to deal with depositing (and a lower risk of that cash disappearing), etc.

Merchants are not “losing 3.1%”. They are making an investment under the belief that accepting credit cards is better for the business than not accepting credit cards.

Depends. If the merchant is part of an industry where there are few other options, one could see it as losing money they'd have otherwise made--especially if most/all of their competitors are doing it.

There's a butcher near my house that is cash only. I don't go there, and I know many other people who do the same just because of the lack of CC acceptance. I asked him about it once. He doesn't want to "give away" 3%. All his competitors accept credit cards. He loses my business and that of a number of other people I know because he won't take credit. But all these people are invisible to him. He only sees it if someone walks into his store, wants to pay CC, and then walks out. All the people who have been there before and subsequently avoid his business, he doesn't see that. So he doesn't think he's losing much business.

Do his competitors charge the same prices as him? If they are charging more, then the people going there are foolish. No point paying 5% more in order to get 2% in rewards.

While a mom-and-pop business may miscalculate the benefit vs. cost, larger businesses have people specifically hired to crunch the numbers and decide these things. The supermarket near me that doesn't accept credit cards is probably the busiest one in town. But as tmiw said, it depends on the competition in the industry. Electric utilities usually don't accept credit cards, because it's not like you can choose a different company. In highly competitive industries, like restaurants, most places will accept credit cards and absorb the costs.

I don’t pick my butcher based on points/miles earned. I hate using cash, and I especially hate receiving coins in change. I hate having to keep track of whether I have enough money in my wallet, and guessing whether that’s enough to make my purchase, or whether I need to go through the added hassle of finding an ATM. When visiting this butcher, I have to remember the price-per-pound on everything he carries, and guess how thick he’s going to cut, or how big the chickens are that day. A credit card takes all the guesswork out of it. I need something, I go somewhere, and I buy it. It doesn’t matter what it costs, I can buy it regardless of what’s in my wallet, and I don’t need to waste time finding an ATM. There’s certainly value to me in a merchant accepting credit cards, but there’s also value to merchants in reaching customers like me who they otherwise wouldn’t.

Wegmans runs checks electronically and the account is debited immediately. I'm sure other merchants could to the same. The problem is, that's a waste of paper and the line moves slower, especially for those who have to ask for a pen.

Contactless credit and debit is the way to go.

Cash paying customers? Someone doesn't know the value of a, "cash paying customer". They are usually the poorest or least loyal customers.

If they wanted to offer a cash discount, I would accept that. But a surcharge means more calculating to determine value.

The hot dog merchant disclosed to me that a company was going around offering a program where there are no fees whatsoever to use their terminal. Once he signed up is when it was disclosed that he was under a 4 year agreement and that they add on the cost to the consumer.

Paying $2.50 for a hot dog is a high priced hot dog. All of his prices are on the upper end. The cost should be absorbed in his cost. Doing this has made me decide, to go somewhere else. I can take it or leave it, I chose to take my credit cards and leave his food behind.