It’s been called a “Surcharge,” “Swipe Fee,” “Credit Card Fee” “Interchange,” or a “Checkout fee.” Until today, retailers were not allowed to pass these fees on to their customers. If you heard about it in the news, you may have the impression that you will have to pay 4% more for everything starting today. That is a myth, and it is not the only one:
Myth 1: A law creating new credit card fees became effective on January 27, 2013.
No new fees were created today, just the question of who pays those fees. Also, no new laws were created today either. Here is what actually happened:
For over 50 years, retailers have paid fees of about 1.5 percent to 3 percent to credit card companies (and others) every time a customer paid with a Visa or MasterCard. Also for the last 50 years, Visa and MasterCard had a rule prohibiting retailers from forcing their customer to pay those "checkout" fees. Visa and MasterCard dropped that rule, effective today.
Why did they do that? It took more than a suggestion. Last July, U.S. District Court Judge John Gleeson proposed a settlement of $7.2 billion to be divided among approximately 8 million retailers, all paid by Visa and MasterCard. This proposal came with a number of other terms; one of these terms allowed retailers to pass the checkout fees along to the consumer.
Myth 2: Every Visa and MasterCard is subject to this new rule.
As of January 28, 2013, retailers are only allowed to pass checkout fees to customers for credit card transactions only. Debit card fees may not be passed on to customers.
Myth 3: AMEX and Discover are excluded because the surcharge is related to the Visa/MasterCard settlement.
The opposite is true. If a retailer wants to pass along the Visa/MasterCard credit card fees to the consumer, that retailer must do the same for AMEX and Discover credit card fees. Here is a good explanation from the Electronic Payments Coalition.
Myth 4: This rule became effective across the USA.
Any state can pass a law prohibiting surcharges and checkout fees. So far, ten states have: California, Connecticut, Florida, Maine, Massachusetts, New York, Texas, Oklahoma, Kansas, and Colorado.
Myth 5: Retailers are going to pass on credit card checkout fees to consumers
“We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge,” Craig Shearman, spokesman for the National Retail Federation (NRF), said in a statement.
So far, retailers like Wal-Mart and Target have loudly rejected the proposed settlement.
Myth 6: Credit card users could get socked with 4% “checkout fee”
This is not exactly a myth, but it is misleading. Again, retailers are largely rejecting this idea, and will not charge the checkout fee to customers, despite what MSNBC had to say.
Also, most credit card fees are much less than 4 percent. Visa and MasterCard products combine to about 90 percent of all card transactions worldwide, and it is extremely rare for this fee to reach or exceed 2.95 percent. So, for the lion’s share of credit products, the maximum (likely) fee is 2.95 percent, because retailers are not allowed to charge customers a higher checkout fee than they actually pay. AMEX fees, however, are higher than Visa/MasterCard, and could reach the 4 percent cap mandated by the settlement.
The bottom line: when you use a credit card, read your receipt, and look for an extra fee which may be called a "checkout fee" or a "processing fee" or simply a "credit card fee." If you are charged these fees at a given retailer, you only choice is to not patronize that retailer in the future; otherwise you will have to pay.
More likely, you may see “cash discounts” offering a small discount to customers who pay cash instead of using a credit card, just like many gas stations in the US. This may also be an opportunity for retailers to initiate tender steering through in-store promotions or through mobile commerce.
Myth #7: This decision is final.
All of this is not quite final. Judge Gleeson is expected to render a final decision on September 13, 2013. After that, the appeals process probably begins and will drag on until about 2015. Does that mean the checkout fee rules will change? No one knows.
David W. Schropfer is the co-founder of the Luciano Group, an international consulting firm, where he is responsible for strategic development and negotiation for the firm and its clients in the areas of mobile payments, partnership agreements, and interconnections. He is also the author of The Smartphone Wallet - Understanding the Disruption Ahead, the first book on mobile payments for consumers and retailers.