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Credit Card Users: Beware of New Checkout Fee

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Are you about to be charged an extra fee if you pay for a purchase with a credit card? Perhaps. Under the terms of a settlement between retailers and card issuers Visa and MasterCard, retailers are now allowed to tack a “surcharge” — also referred to as a ‘checkout fee’ onto credit card purchases. But what they are allowed to do, and what they actually do, remains to be seen.

As of Sunday, Jan. 27, merchants are able to charge consumers more for making purchases with a credit card as a means of covering the cost of what payment processing companies charge for handling the transaction. These fees will likely be in the range of 2-3 percent, if they’re charged at all. The fee can only be applied to credit card purchases, not debit card purchases, and cannot exceed what the merchant pays for handling the transaction.

“Everybody better be on their guard [to] make sure they aren’t charged a checkout fee,” says Linda Sherry, director, national priorities for Consumer Action which has launched an informational website KnowYourCard.org.

And while merchants now have the ability to pass these charges on to consumers, the likelihood of their doing so is small because they risk a backlash from customers — not to mention the extra work involved in changing over cash registers, training staff and handling the bookkeeping. Those may be some of the reasons why merchants, who have always been allowed to offer discounts for cash, rarely do. Other than gas stations and a few stores here and there, it’s unusual to see a business offer a discount for customers who pay by cash.

Our prediction? You’re more likely to encounter a surcharge with a local mom and pop business, and especially one that provides essential services you’re less likely to shop around for, such as your doctor or accountant, for example.

So what can consumers do to protect themselves? First, merchants must clearly disclose that they will charge a surcharge — at the entry of the establishment and the point of sale — so you can always choose not to do business with that merchant. (Of course you may want to let them know why.) And carry a back-up method of payment — a little cash or a debit card — so if you are presented with a surcharge you don’t want to pay you can always say “no thanks.”

Shoppers should also keep in mind that there are already laws on the books in 10 states which prohibit surcharges, and this settlement won’t change that. California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas all outlawed the practice even before the new rule change, which was signed off on by Visa and MasterCard as part of a major settlement with a number of merchant groups.

Even though retailers are gaining the ability to assess a surcharge, they aren’t all happy with the settlement on the whole. Many in the retail industry say it gives Visa and MasterCard, the world’s two largest payment processing companies, impunity to raise transaction fees significantly in the future. This is because part of the deal, which will cost the payment giants billions, specifically prohibits future suits related to these processing fees from being brought against them.

However, the surcharges are preliminary, and pending some further legal action from merchants, rules on if and how retailers can charge these fees could be changing in the coming months.

Image: iStockphoto

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  • Tom R

    At lot of this issue goes back to rewards cards. While merchants like myself were used to 2 to 3%, many cards now add more to the merchant to support these rewards and there will be an adjustment as required. You may not see in additional charges for credit card purchases, but you will have them in the form of higher prices- it’s a business fact of life. The only real winner in all of this are the banks issuing the credit cards. Bigger merchants can push the banks around for a little better deal, so its the rich getting richer for awhile, but in the end the additional fees equal higher costs for merchants and consumers alike. The real “villains” are the credit card cos. not the merchants.

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