Be on the Lookout for Credit Card Checkout Fees

By Beverly Harzog. Last updated 21 January 2013. 25 comments

Would you pay a fee to use your credit card? I don't even need a nanosecond to answer this. My response is: No freakin' way.

Here's why I'm asking the question. Last summer, there was an antitrust settlement between merchants and Visa, MasterCard, and big banks about credit card interchange fees. These are the "swipe" fees merchants pay to the networks (like Visa) to process your payments when you buy something.

The settlement called for merchants to receive $7.2 billion in cash and temporary reductions in interchange fees. This settlement also gave merchants the legal right to add a "checkout fee" when you use a credit card to pay for purchases. These fees could start popping up as soon as January 27, which is right around the corner. (See also: 12 Annoying Bank Fees and How to Avoid Them)

How to Know If a Checkout Fee Will Be Charged

Merchants can't sneak in the fee without telling you up front. They have to disclose that you'll pay more for using a credit card. So if you're in a store, look for notification at the entrance or at the register. When buying an item online, look for the checkout fee to be disclosed on the homepage of the business.

Retailers are allowed to charge a fee that's the equivalent of what they pay for the interchange fee, which is between 1.5% and 4%. I was kind of surprised to find out that merchants can add a surcharge of up to 4%. You know, that's a lot.

Competition Is Your Friend

Okay, so the settlement gave merchants the right to ask customers to pay a surcharge if they use a credit card. So they have the right to do it, but does it make business sense for retailers to charge a checkout fee?

I say no, it doesn't. I'm pretty sure a minority will try it out and see how it goes. If you use your credit card to pay for a $200 purchase, you could pay up to $8 just for the privilege of using a credit card. And if you're using a rewards card, paying an extra fee lowers the value of the rewards.

At the end of the day, we're all smart enough to do the math and choose the retailer who gives us the best deal. So I think competition is one of the reasons we won't see widespread checkout fees, at least not right away.

Also, other than price, customer service is often the best way for competitors to differentiate themselves. Retailers that don't charge their customers a checkout fee will look more consumer-oriented.

If you think about it, the only retailer who can probably get away with it easily is a store that offers something so unique that there's limited competition. Maybe if that were the case you wouldn't even care because, for whatever reason, you really needed that specific, unique product.

Will Credit Card Rewards Be an Endangered Species?

Rewards credit cards tend to have the highest interchange fees, so there's speculation that credit card issuers might devalue rewards programs to save money. I doubt this will happen because this doesn't make sense in terms of profits.

Banks make a lot of money from rewards cards. Sure, they give cash back or help you earn free airfare and that costs the issuer some dough. But rewards cards also have higher interest rates and many consumers routinely carry a balance. If banks decrease rewards, cardholders will lose the incentive to use them. If that happens, banks will lose revenue.

Now, banks don't normally sit around and accept their financial fate. So we could see annual fees inch up or interest rates on rewards cards go up a tad. But I don't think any changes will happen right away.

Also, this isn't a done deal yet, so trying to predict what will happen with any accuracy isn't possible at this point. There's more legal wrangling ahead.

Reasons Why This Isn't Over

The agreement between merchants and the different payment networks is inconsistent (I almost used "convoluted," which also seems accurate). Visa, MasterCard, Discover, and American Express all have rules that merchants have to follow.

Even though merchants can now charge a checkout fee for Visa and MasterCard credit cards, there's a problem if they also take American Express cards. American Express's agreement does not allow merchants to add a checkout fee and they aren't part of the settlement. The irony is that American Express cards have the highest interchange fees of all.

Another reason it's way too soon to predict the future is because the merchants themselves aren't happy with the settlement. Big-time retailers, such as Target and Home Depot, aren't on board with the settlement. There are many details to the agreement that go way beyond the interchange fees and this is why the outcome could remain up in the air for a while.

Just Say No to Checkout Fees

The credit card checkout fee is actually banned in these 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

If you're not in one of these states, keep an eye out for this fee when you buy something. And if you're faced with a checkout fee, simply vote with your wallet. Spend your money with a vendor who isn't charging this fee.

And keep in mind that, according to Consumer Action, checkout fees are only allowed for credit cards and charge cards. You can not be asked to pay a checkout fee for using a debit card.

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Guest's picture

I am sharing this everywhere I can. Another thing we have to keep an eye on our receipts and at the stores we shop at. Terrible, just terrible is all we can say. Can website's do this for e-commerce?

Beverly Harzog's picture

Hi Becky -- Yes, websites can charge this fee, too. But they're supposed to disclose it on the home page, so they can't surprise you with it when you check out. I'm hoping we won't see a lot of these fees, but I want everyone to be on the lookout for them.

Guest's picture
Tim

This is incorrect. The settlement didn't "give" anybody "rights" (rights are inalienable). I remember in the 1990s when it was common for gas stations to charge 5% for credit, or give a 5% discount for cash.

Guest's picture
JD

The article reads "legal right" which is different than "human right"
http://www.businessdictionary.com/definition/legal-rights.html

Beverly Harzog's picture

Hi Tim -- Before the settlement, the contract between Visa/MC and the retailers prohibited the merchants from charging this checkout fee. So the settlement removed that restriction. But AmEx still has this restriction in their contract with merchants.

Guest's picture
Guest

Think of us poor souls in Australia. We have been paying credit card fees for at least 3 years. It's not really the storefront retailers who are the problem (although some of them charge a fee for AMEx, Diner's etc), it's the phone companies, the utility companies, insurance companies, etc. Really anybody you pay via online banking. And since there is no real competition, we just get socked. The 4 big banks here own this country. And they call the shots. Making billions and billion every year. Sorry 'bout the rant - but cc fees are really annoying.

Beverly Harzog's picture

Oh my, that does sound awful. And no need to apologize for the rant. We Americans do our own share of ranting! We do have to pay credit card "convenience fees" sometimes here. But the idea of a credit card checkout fee is new.

Guest's picture
Saty13

What Beverly obviously doesn't know (amazingly) is that a handful of major banks own the U.S. (us) too.

Our financial laws, which were supposedly written by Congress, were actually written by banks. Those laws are so lax that they basically put banks almost out of the reach of justice and allow them to prey on us. Banks have "had us by the balls" for decades, but it really came to head in 2008 when they almost destroyed our entire economy overnight.

Since then, we haven't managed to get control of the beast because both Republican and Democratic politicians (but mostly Republicans) are OWNED by the banks.

Guest's picture
Guest

I absolutely won't buy a thing at any store that charges me a fee to pay for its goods. This also goes if they offer a cash discount (same thing).
They'll lose a good customer if they try it.

Beverly Harzog's picture

Hey, I'm with you all the way. Consumer Power!

Guest's picture
Guest

i understand the reluctance to pay a credit card fee. and for "big" companies to charge this, it is annoying and i'll try and take my business elsewhere. HOWEVER, a counterpoint is all the local, small businesses that are already trying to compete against a big box or chain store and then what small profit they make gets taken by the credit card companies. for some small businesses, the only way they can recoup those costs are to pass it on to the consumer. you'll have to make the decision on whether you're willing to pay the fee to support a small business.

Guest's picture
Guest

Fill up your cart/arms, get to the counter, see the additional fee, remark about the additional fee, leave items at counter, leave store.

Beverly Harzog's picture

Well, that certainly would make a statement! :)

Guest's picture
Guest

If a business doesn't build merchant account charges into their operating costs, they are stupid. Raise prices four cents if you need to, but it looks horrible to add an extra fee to come support you.

Beverly Harzog's picture

I think most merchants do build the interchange fee into their prices. That's a big reason I'm not willing to pay more. And I totally agree with you that it would look horrible to tack this on at the register. I heard today that Kroger is considering it. Bad move, if that's true. I have to wonder if they leaked that info to gauge the public reaction.

Guest's picture
Mark Rossignol

check out snopes.com about this issue too - http://www.snopes.com/politics/business/creditcard.asp

Beverly Harzog's picture

Hi Mark -- I like that story. They did a good job making the facts very clear. There are tons of stories out in the media right now about the checkout fees. I've read some stories that are mixing up the facts at this point.

Guest's picture
Guest

The businesses gets charged a fee for you to use your card... so the business owner makes less money on each credit card transaction than we do on a cash or check transaction.. The merchant service charge should be automatically charged to your card ... you are the one CHOOSING to use the card instead of paying with cash or check.

Guest's picture
Guest

Amen. Nobody cares about the money the business loses out on to pay the fees. The consumer is choosing to pay with the card, why shouldn't they pay for the fees associated with it?

Beverly Harzog's picture

I respect the point you're making. But I think we're already paying higher prices due to the interchange fees. Retailers benefit a great deal when they allow consumers to pay with a credit card. It's convenient for customers and it increases sales.

I see the interchange fee as the cost of doing business. And the smart retailers adjusted their sales prices to reflect this a long time ago.

Guest's picture
Guest

Sorry Beverly I do not agree with you. Smaller stores have been getting hit hard by these fee's. There are customers who get turned down because they try to purchase an item for 50 cents on a credit card. It's horrible!! Come on people, cash still exist.

Guest's picture
Guest

Who is forcing the business owners to accept credit cards? I understand that accepting credit cards gives consumers incentive to pick you over another business that does not accept credit cards, but in no way is it the consumer's fault that the business decided to accept credit cards. This is a cost of doing business!

Yes, I understand your point. However, I disagree with your conclusion. You choose to accept cards, you pay the price.

Guest's picture
K

If I found out a merchant tried to sneak in the fee, I would leave the items at the checkout counter and walk away. If everyone does this, the merchant would get the message that they need to build in any expenses into their product so we know in advance as a consumer to decide what an item is worth

Guest's picture

Ha! I love this idea. Though hopefully you don't have a lot of folks behind you givnig you the evil eye while you do this.

Guest's picture
Saty13

I am always stunned at people's misguided anger at retailers over "passing on" the credit card fee directly to consumers. This writer, Beverly Harzog, (like others) is adding to that stupidity level with comments like "No freakin' way"...I'm not willing to pay the credit card fee.

As a consumer you are almost ALWAYS paying 2-3% more for your retail purchases IN THE FORM OF HIGHER RETAIL PRICES, whether or not you use a credit card for that purchase. And, that money, obviously, goes to the BANK not the retailer.

There is no fault here on the part of retailers if they begin to charge a higher price to those customers who CHOOSE to use a credit card rather than raising prices on their goods as inflation continues its upward climb. After all, why should the retailer (or the customer who pays cash) subsidize YOUR BANK'S EXORBITANT FEE with higher prices on products? And why should the retailer help your bank to HIDE it's exorbitant fee by rolling up the fee into the merchandise price?

I prefer they get those fees all out in the open so that the consumer can see it and own it and then decide whether they really want to bear the true cost of using their credit card. If the consumer is not happy with fee (and why would anyone be content to fork over what is essentially a 3% tax to the "banksters"), then they should elect politicians who are willing to reign in the bank’s extravagance. Ask yourself how much you would resent it and protest if your city or state or federal government tried to increase your taxes by 3%. How is it okay with you that banks get away with charging that much for merely processing an electronic transaction -- a transaction that costs pennies or less to process! It’s NOT okay!

Banks are having their way with us. Getting this fee out into the open forces the consumer to be AWARE of where her money is going and let’s her take charge of the situation (no pun intended). She has the CHOICE to either buy the item at the lower price by paying by cash or to buy the item at the higher price for the convenience of using my credit card. It's FAIR.