Credit Card Surcharges now Legal, but are they Practical?

This week, a lawsuit was settled that now allows retailers to pass through the credit card fees they pay to you the consumer – with some exceptions and some confusion.  Ten states hold out on the new law change that allows retails to pass on the credit card surcharges for using a Visa or MasterCard.  If you live in one of these states, you could be saving up to 4% on your purchases.

Texas, California, Colorado, Connecticut, Florida, Maine, Kansas, Oklahoma, Massachusetts, and New York are the ten states that still make passing through the credit card fees to the consumer illegal.  But if you don’t live in one of these states, you still may benefit from the laws in these 10 states without shopping there.  Retailers are required to treat all of their stores the same in how they handle credit card fees.  So, if a retailer has a store in one of these 10 states that does not allow them to pass the fee on to you, then they cannot pass the fee on to you in any state.

One news station reported that some retailers, including Walmart and Target and others, had ‘decided’ not to pass along the fees.  In reality, large retailes will not be able to pass along the fees since they have stores in at least one of these states.  Another limitation for retailers is that they must treat all credit cards the same.  If they accept American Express, they cannot pass the charges on for any of the credit cards they accept.  Be aware that many small businesses do not accept American Express or may discontinue accepting American Express

How to avoid credit card surcharges:

* Shop in one of the 10 states that don’t allow the credit card surcharges

* Use a debit card:  Credit card surcharges can not be applied to debit cards even though they have a Visa or Master Card logo.

* Shop at a store that does not pass the surcharge on to you the customer.

How to know if your retailer is charging you credit card fees:

Retailers who choose to pass along the credit card fees are required to inform you by at least one of three ways.  They can display a sign at the entrance notifying you, place a sign or notification at the point of sale or cash register check out where you use the credit card, or print the information on the receipt.

Printing the information on the receipt is really notification after the fact and you will need to read your receipts.  The retailer is required to show the amount of the surcharge being passed on to you as a separate amount on the receipt and the amount can only up to the actual fee they pay up to 4%.  They cannot assume the full 4% if their rate is lower.

Cautions:

Fees can vary by type of credit card:  Cards that offer Rewards programs or have a Premier status may charge higher fees and so the higher fee can be passed on to you.  You will need to find out if the fees for your different credit cards vary and choose the best option for you.

Online retailers can charge the fees as well, unless some of the other limitations apply.  This can take away the advantage that online retailers can have with regard to sales tax in some states.

Small Business: Boost or Bust? Small businesses  may not have locations in other states and so may have the legal availability to pass along these fees to the customer.  Small businesses often pay higher fees than large retailers so they may see this as a way to recover costs without raising prices in a slow economy.  However, they will be caught between wanting to recover costs and still competing with the prices of larger retailers.   Once again, small business could be hurt by a law that was intended to help retailers.

Keeping track of who charges and who doesn’t?   While many or even most retailers may not pass on the fees to you, over time, more and more retailers may start to charge the fees.  You may need to begin to keep track and be able to continually evaluate if a lower price at one retailer will in fact be a higher price to you.   Watch for those signs, and always look at your receipts.

Reality Check:

This change in the law is confusing and awkward.  The software of retail stores will all have to be modified to charge and track the fees for reporting.   Store credit cards like Lowes or JcPenney or other retailers may not be able to pass through the charges if they cannot also pass through the charges on their store brand credit cards.   American Express cards may become more popular for consumers, but less popular for retailers.  Debit cards, especially reward debit cards may become more popular to give the best of both world’s in providing a reward as well as protecting from the additional fees.

Even though we may not see this surcharge take affect immediately, this change does make way for the charges to begin showing up and becoming normal.  This might feel a little bit like the frog being placed in the pot and the water just beginning to warm up to charging you and extra 4%.  Don’t let this sneak up on you.

Keep an eye out for additional charges and look out for each other.

Let us know if you see any of these charges on your receipts, or signs at retailers passing on these fees.