Agreement Could Add New Cost to Credit Card Use

/ BY / Credit Cards

Will stores start charging you a fee when you use your credit card to make a purchase? It could happen because of a proposed settlement between a group of retailers and Visa, MasterCard and major banks that issue credit cards.

Merchants have complained for years about the percent of purchase that they have to pay to credit card companies when a customer pays with plastic. These "interchange fees" or "swipe fees" can run about two to three percent of the purchase costs, and merchants have not been allowed to pass this cost on to consumers. (They may, however, offer a discount for cash or debit/PIN transactions; that's why you'll often see gas stations offering one price for cash and another for credit.)

Sellers say that they have to add that additional percentage into their overhead costs, so it runs up costs for everyone, even those who don't use credit. They believe that's unfair to cash customers who are, in effect, paying more because other people choose to use credit.

Representatives of various merchant groups and of the credit card industry have been battling the swipe fee issue in court for seven years. In June 2012, however, the two sides announced a proposed settlement that would allow retailers to offer additional incentives to customers for using cash. That could include charging a fee when customers use their credit cards.

Visa and MasterCard also agreed to reduce the swipe fee percentage that merchants must pay.

But don't worry that using your credit card will cost you more--at least not yet. There are still a lot of obstacles before the settlement wins final approval, and even then it's not clear if merchants will pass on their costs directly to credit card users.

For one thing, the court that has been hearing the merchants' case has to agree to the settlement. That's not a given, because many important retailers and merchant groups who are part of the lawsuit have rejected the settlement with the credit card companies. They include Walmart and Target and organizations such as the National Association of Convenience Stores and the National Grocers Association.

These groups argue that the settlement doesn't get to the real heart of the matter, which is that credit card companies set the swipe fees arbitrarily. They want more transparency in the way that credit card issuers set such fees, and the proposed settlement doesn't provide that. They also say that consumers could suffer under the proposed settlement.

Other observers note that it's unrealistic for merchants to say that it's only credit card users that are costing them money, since processing checks and even cash also costs merchants money.

Even assuming that the settlement is accepted, you probably won't have to pay fees for using credit cards anytime soon. If you're a resident of California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas you are already safe, because your state has laws against charging customers more for using credit. Other states are likely to pass similar legislation if merchants begin to charge credit card users an extra fee.

In addition, many credit card experts don't believe that merchants will start charging credit card usage fees any time soon, especially in an economy where they're already struggling for business. Merchants don't want to lose sales, and they know that if they begin tacking on an extra two to three percent to your bill when you use your credit card, you're likely to go to a retailer or a service provider that doesn't require that additional fee.

So for now, at least, you can go ahead and use your credit card without worrying about any extra costs. But stay tuned-the story is still unfolding, and there's no telling at this point what's going to happen in the long term.

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