Recent personal finance headlines are warning consumers about new fees they’ll be slapped with if they use their credit card. Naturally, this caused alarm–especially in me, who makes a living keeping abreast of personal finance happenings! Had I missed something? The short answer: No. Though the matter was initially discussed in mid-July, legislation was finalized around the surcharge and how it can be applied by merchants accepting credit card payment from customers in late January. However, aside from the fact that the matter is officially legal (in some places) it’s no different than the “swipe fees” matter I wrote about earlier this year. Here is the truth behind all the hype surrounding credit card fees, and why you shouldn’t stop using your credit card–but may want to start carrying cash or a debit card (just in case).
What is the new credit card fee?
Merchants have long paid “interchange fees” to Visa, MasterCard, American Express and Discover for allowing customers to pay with credit cards. Up until now, those fees were simply a cost of doing business. (If you’ve ever wondered why some retailers don’t accept credit cards for low dollar amount purchases, that’s the reason). As of January 27th, as a result of a lawsuit between Visa, MasterCard and bank card issuers, it was determined that some merchants can pass the swipe fee (which is 1% to 4% of the total purchase) onto consumers. Unlike what many media headlines would have you believe, however, it doesn’t mean that everything you buy on credit cards will cost you more. Here is what is does mean:
1. If the merchant charges the fee–you’ll know it. By law, merchants must post signage at the point of sale, and on the customer receipt, notifying customers of the swipe fee. As such, it is your right as a consumer not to pay it, by not using your credit card. Conveniently enough, it was announced earlier this month that some Chase (JPM) and PNC Bank (PNC) operated ATM’s will now give the option to take out smaller bills, including $1 and $5 denominations, which can help you resist the urge to splurge when $20 was the smallest option. Of course, it’s also a reason to be especially vigilant about your ATM usage, to avoid fees for out of network use, and not to exceed the free usage than your specific bank relationship allows.
2. Not all states have made it legal. Despite the ruling to “legalize” the interchange fee, there are still 10 states that ban the surcharge completely: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
3. American Express cards aren’t “fee-able.” Credit card purchases made with Visa and Mastercard could technically be subject to the interchange fees, but American Express (AXP) was not part of the settlement; your AMEX purchases are inherently free and clear of the fee regardless of merchant policy.
4. It’s applicable in store and online. While online merchants must follow the same disclosure fees if they charge a fee–they can legally do so. Look for a notice before you complete your purchases at online checkout portals, too.
5. It’s not good for merchant business. While merchants can technically charge the fee, they know consumers have a choice, and profitability is as much about customer service as it is minimizing business costs. Merchants who accept credit cards see higher average order values, and nickel and dime-ing customers over a miniscule percentage probably isn’t worth the potential cost of lost business. While you likely won’t see the new fee instituted at major retailers, marketing expert Brent Smith, Ph.D., says you should be wary of surcharge surprises if you tend to shop locally, or from small businesses, predicting that some retailers may experiment with some level of surcharge fee — perhaps 1 or ½ percent.
