This week a new rule comes into effect that may impact how often you use your credit card. As of Sunday, stores in most U.S. states are permitted to charge customers a "checkout fee" when paying by credit.
As of Sun., Jan. 27, 2013, consumers may find they receive an extra surcharge when they make purchases by credit card. This fee stems from a multi-billion dollar settlement announced last July that concluded a case initiated in 2005. The settlement was between credit card issuers and millions of merchants.
Why the charge?
Merchants are now allowed to charge consumers this "checkout fee" to offset the interchange fees (often referred to as "swipe fees") charged by credit card issuers to merchants. Essentially, this charge allows merchants to cover the cost of the so-called "swipe fees" required to pay credit card issuers, such as MasterCard and VISA, passing the burden onto the consumer.
What you need to know:
• The amount allowed to be charged to consumers is limited, and can be anywhere between 1.5 and 4 percent of the total purchase; it cannot exceed 4 percent. What determines the amount is how much it costs the retailer to accept the credit card.
• It is illegal for stores to charge the new fee in the states of New York, California, Texas, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts and Oklahoma. The fee is permitted in all other states and U.S. Territories.
• Merchants have a choice in whether or not they charge the fee; it is not mandatory.
• The fee is not applicable to debit cards and prepaid cards.
• Retailers must post notice on entrances if they charge the credit card fee and the exact amount of the fee has to be provided at the point of service during checkout.
• Surcharge fees must be included on every receipt, for purchases made at brick and mortar and online shops, notes VISA.
Other consumer considerations
In addition, another factor to consider is the security in using debit vs. credit. If not credit, consumers have the choice to use cash, prepaid or debit cards to avoid the fee. However, often using debit cards is discouraged because of the increased risk of identity and financial theft. One of the benefits of credit cards is the fact consumers can better protect themselves in the event fraud occurs.
TIME reported earlier in the week that many retailers are likely not going to want to alienate customers in highly competitive environments by charging the fees, so it is probable consumers may see few of these "checkout fees" when they use credit. Although, industries that see less competition may feel more comfortable applying the surcharge.
Impact on the retailers
While the fee is not mandatory, it does put retailers at a disadvantage because the problem is shifted onto them; they either must pay the fees themselves to credit card issuers or pass the burden onto consumers.
This settlement has been a controversial one, and many major retailers, including Target and Walmart, have spoken out against the decision, saying it will impact ability to keep lower prices and will put a dent in the consumers' pocketbook.
According to a CNN Money report, Target said last summer it wasn't interested in charging credit card using customers more, "in order to allow Visa and MasterCard to continue charging unfair fees."
Perhaps the big question is though, will the cost instead be absorbed into the costs of goods and services? Either way, the consumer loses and credit card issuers win.
Swipe fees became a prominent issue after the passing of the Durbin Amendment, which went into effect on Oct. 1, 2011 and put caps on the interchange fees charged by banks. At that time, several banks tried to sneak in fees in various other ways, causing consumer backlash.
Is it the time to move away from credit to more cash transactions? What do you think?