Did you see the news headlines last week about the additional fees for using a credit card? It was a hot topic, and most of the quick headline reports that I saw on T.V. made it sound like it was a fact that everyone who uses a credit card will be charged a new fee every time they use it. However, this is not actually the case, and the fee has many restrictions.
The new credit card surcharge is a fee that stores will be able to charge customers. The amount of the fee can be up to a maximum of 4% of the total sale amount, and the purpose is to pass the swipe fee retailers are required to pay on to the customers. Passing the fee on to the customers had been banned until a legal settlement in July of 2012.
The legal settlement was between credit card issuers and retailers. In the settlement, Visa, MasterCard and major banks are required to pay more the $7 billion to approximately 7 million retailers, swipe fees charged to merchants are required to be reduced for eight months, and stores are now allowed to charge surcharge fees to customers. Though the settlement occurred last summer, the surcharge fee became legal on January 27, 2013.
Though the surcharge is now legal, there are many restrictions placed on it…
- The surcharge can not be assessed on debit card transactions.
- The amount of the surcharge to the customer can not exceed the fee the retailer is charged by the credit card company, and the receipt must state that the amount of the surcharge is equal to what the retailer pays to process the transaction.
- Retailers who asses the surcharge must have a sign at the entrance of the store stating that they are going to add the surcharge, disclose the rate of the fee at the point of sale, and must include a separate line on the receipt showing the amount of the fee. Online retailers must also disclose if they will be charging a fee and the rate they are charging before the transaction is completed.
- The settlement only makes the surcharge legal for MasterCard and Visa transactions, but requires retailers who charge a fee to MasterCard and Visa to also charge the fee to other cards with an equal or higher swipe fee. So if the retailer accepts American Express, and American Express charges the retailer a higher swipe fee than MasterCard or Visa, the retailer would be required to add the surcharge to American Express transactions. However, the surcharge on customers is still banned by American Express. This would cause the retailer to have to choose between charging customers the surcharge and not accepting American Express (or any other card with higher swipe fees than MasterCard or Visa) or not charging customers the surcharge at all.
- The surcharge fee to customers is still illegal in ten states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas). Visa and MasterCard have requirements in place that retailers must handle credit card transactions the same in all of their stores. So any retailer with a store in one of those states where the surcharge is still banned would not be able to asses the surcharge in any state.
Due to the long list of restrictions, the credit card surcharge on customers will likely not become common practice. Additionally, retailers who do start assessing the surcharge will likely face backlash from their customers and risk losing them to competitors who do not charge the fee. Craig Sherman, spokesman for the National Retail Federation, states in a Kiplinger article written by Cameron Huddleston that, “the point of the lawsuit, which was brought by merchants, was to bring down credit card swipe fees, and, in turn, lower prices for customers.”
Even though the credit card surcharge headlines were made to catch your attention, restrictions and fear of customer backlash are likely to cause the fee to not become a common practice in the near future.
BY: Mark Sawyer, CPA