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New credit card swipe fees could hit consumers
A woman uses a credit card reader to charge a credit card from a customer for payment at Lorenzo's Italian Market in Miami, Fla.
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Just when you thought there were no more possible credit card fees, a new one is in our midst. Retailers can now pass on the credit card fees they pay when you swipe your card to you.
Credit card swipe fees are usually between 1-4 percent of the price of what you buy. They do add up, to more than $30 billion a year. Merchants have long said the fees eat away already thin profit margins and, now, we may get the chance to feel their pain. The change is part of a $7 billion settlement card companies made with merchants last year.
Linda Sherry is the director of National Priorities at Consumer Action, a nonprofit consumer advocacy group. "Unfortunately, you could start seeing a new retailer surcharge, which we’re calling a checkout fee, when you use your credit card to buy goods and services," she says. Sherry says shoppers can be on the lookout for a notice at the entrance of the store about the new fee. Shoppers will also be told about the fee at the cash register.
"A merchant can say to a customer, if you use debit, cash or check, you’re going to pay less than with this credit card. It helps me out and it will help you out," says Sherry. Still most of us probably won’t see the new fee predicts Jeff Leonard, spokesman for the National Association of Convenience Stores. "Even with all the noise about surcharging, I don’t think you’ll see surcharging anytime soon," he says.
Leonard points out that 10 states have laws in place that ban the fee, including New York, California, Texas and Florida. Stores are also worried about consumer backlash associated with the fees.
Get ready for new credit card fees -- or not Retailers can now openly charge shoppers more for using credit cards. In fact, they’ve stealthily been passing those 1 to 4 percent fees on to consumers.
Even if the new fees aren’t passed on, retailers may ask customers to pay in a way that’s cheaper for the store, says retail consultant Michael Sansolo. "Everybody’s card is not created equal to everybody else’s card," he says. Sansolo explains rewards cards carry higher fees for merchants; credit cards cost merchants more than debit cards; and debit cards have a have two-tier fee system depending on whether you type in your PIN or sign. "Retailers could make the point with the shopper that if you’re using a debit card, and you do the signature, it might be a 2 percnet or 3 percent charge," says Sansolo, "because there’s risk associated with that, but if you do it with your PIN, maybe there’s no charge or a lesser charge."
Sansolo says once consumers have more information about the fees associated with credit cards, they may choose to use debit instead of credit, or even cash. "Ultimately," he says, "it could change the way we pay."
When it comes to customers, the "blah blab blah, what does it matter to me!?" would be this: Would I pay the same with a CC and get a discount if I don't, or just pay a surcharge for paying with a CC?"
The situation should warrant the former, since businesses already set their prices based on the CC fee which can be rebalanced when you know they won't use it. Both the article and my inner cynic seems to assume it'll be the latter. If you don't use a CC, you pay the current, CC adjusted, price while using a CC means you pay that price plus another adjustment fee.
It'll be interesting what stores do what. If they all go surcharge, the customer will be forced to accept and get used to it. If some don't or go the discount route, customers may flock to them.
Funny thing is, a company could easily just bump the price up, then offer the discount. It'll make the same benefit and most won't notice the switch around. It's also note new as that's how many handle 'christmas sales'. I'm thinking a good many won't think that way, though, and opt for simplicity instead of PR.
Btw thanks, Bob, for letting me know about the change in Sig debit vs Pin debit. I never did like putting in my PIN though, at the time, ti was cheaper for the business involved. Now that they match, there's no point to putting my PIN in.
It also means that any store that decides to try to surcharge me for using a signature as part of the new system is simply scamming me and doesn't need my business.
This is really only fair and should help the consumer also for now the business can set the margin on the products you sell at a lower price if you do not have to factor in the amount of the cc charge. Gives the consumer the option to save money by using cash or check or debit card. A business has to collect sales taxes and passes on those to the consumer. Taxes are outside the cost of the actual goods and services being purchased. When one gets a price quote for a product, it is cost of product + cost of sales tax. Credit card charges are analogous as the actual cost of producing the product does not include and should not include the cost of some external processing fee. When you buy stuff from Europe, they can simply delineate out different costs of payment options. This is standard way of doing business if I buy stuff from Euro vendors. I should have that same option as a vendor here in USA.
For example I sell someone an order that I need $1000 to achieve my profit margin and stay in business. If he is willing to pay cash or check I can sell him that order for $1000. But if using credit card, I would only realize $950 if I charged $1000 and it cost me 5% to process the cc. So the way it was before this piece of consumer legislation, I would have had to raise my price to 1052.63 to realize that same $1000 going into my pocket. Why should I not be able to offer to save him that extra $52.63?. And yes, you have to raise the price 5.263% and not simply 5% because the cc charge is based on the selling price.
And in another take on this. Say I am a local building supply store and do not have the buying leverage of a national big box firm. But they have to have the cc surcharge built into their price. I do not—so if my customer has the cash and is willing to pay cash, I can offer him a discount thus allowing me to be more competitive. On large ticket items that have low margins, this can be a very powerful consumer and business advantage. And it has always been standard practice to offer cash discounts over buying on credit—EXCEPT when that credit was handled by a credit card as opposed to in house credit.
Good story on the possibility for a surcharge when checking out with a credit card.
I think Mr. Sansolo is incorrect on part of this quote. He says: "Retailers could make the point with the shopper that if you’re using a debit card, and you do the signature, it might be a 2 percnet or 3 percent charge," says Sansolo, "because there’s risk associated with that, but if you do it with your PIN, maybe there’s no charge or a lesser charge."
The Durbin Amendment set the transaction fees for Debit cards, and the fee is the same for PIN Debit and Signature Debit. Retailers get the same low interchange rate whether the transaction is processed as Signature Debit or PIN Debit.
See: http://portalsandrails.frbatlanta.org/regulations/
“Then came the Durbin Amendment (part of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and the resulting implementation through Regulation II in October 2011 that changed the debit card world forever. The rule set a maximum interchange fee for signature and PIN debit and made no differentiation between the two”
