COMMENTARY| On Sunday January 27, 2013, as part of a class action lawsuit settlement, retailers across America gained the right to surcharge up to 4% for using a credit card for purchases. This was part of a U.S. District Court ruling that allowed merchants to pass through their interchange fees (fees charged by Mastercard and Visa to retailers) to consumers. According to several news sources, including ABC News, and The New York Times, the rule went into effect in 40 states. However, it remains illegal to surcharge for credit card purchases in 10 states, including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
According to the Electronic Payments Coalition (which represents Mastercard and Visa), retailers are required to post signs at the store door clearly stating that they do surcharge for credit card purchases. They are required to state how much the surcharge is at the checkout counter and the register receipt.
According to NBC News and The Wall Street Journal, some of the largest retailers like Wal-Mart, Target, Sears, and Home Depot do not plan on adding credit card surcharges. Some others, like Kroger or Rite Aid, are either not imposing surcharges for the time being and steering consumers towards other forms of payment. The final ruling on the settlement is still pending.
As I wrote in "First Person: 5 Reasons Why Retailers Should Not Impose a Surcharge for Credit Card Purchases," I strongly believe retailers should not tack on this interchange fee surcharge to consumers' credit card purchases. It is bad business for them, even though it appears to be an immediate 3-4% profit margin improvement.
As a consumer, I would absolutely refuse to pay such a surcharge. Here is why.
Not a tax, so the consumer is a loser
As a consumer, I am used to paying sales taxes on non-food purchases. However, state sales taxes are spent in developing local infrastructure, like building roads, schools, and libraries. A credit card surcharge would benefit only the retailer, as a consumer, even with credit card purchase rewards, I would in the best case break even. This does not sound like a winning proposition.
Fragmented marketplace, elastic demand
Let us assume the merchant in question is my local Chinese restaurant. Clearly this is not a monopoly situation. I could easily switch over to another restaurant. For example, there are a few cash only places in my area. I visit them far less than ones that take other forms of payment. I am happy to show retailers who surcharge for credit card purchases how elastic my demand is. Maybe I will buy the frozen Chinese food at the Wal-Mart or Target, who are not surcharging.
Inconvenient for both
I usually travel light, typically with no coin change. As a Gen Y consumer, I am as close as possible to cashless, as are many of my friends. I can imagine pay $20 for something that costs $8.53 and leaving the coin change at the store. Perhaps this is what the small merchants who want to discourage credit card purchases want, pennies in extra money. However, at the end of the day, I am not happy about my wallet bulging with singles, and coins left at the store. And the store owner has to make more frequent trips to the bank with a bag of coin change. It is so much easier to swipe!
Consumers have pushed back other rip off fees
I wonder if retailers who plan on surcharging credit card purchases remember the 2011 debit card fee drama, when consumers were able to push back behemoths such as Bank of America and Chase for charging fees on debit card purchases. The backlash was so severe that most banks reversed their decision to impose debit card fees in less than a quarter after they were announced. An extra 80 cents off a $20 purchases may not break my bank, but it is the sort of annoyance fee I would stand my ground on. And I am voting with my feet when it comes to surcharges on credit card purchases.
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