Credit Card Swipe Fees Begin Sunday In USA

An anonymous reader writes "A speedbump on the road to a cash-free economy will go into effect Sunday in the U.S., as retailers in 40 states will have the option of passing along a surcharge to customers who pay with credit cards. The so-called swipe fees arose from the settlement of a seven-year lawsuit filed by retailers against Visa, Mastercard, and big banks, who collect an electronic processing fee averaging 1.5 to 3 percent on transactions involving credit cards. The banks naturally have opposed the consumer surcharges, preferring that the extra costs to be passed along in the form of higher prices. Consumers in ten states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas) won't be affected, since laws in those states forbid the practice (it seems that gasoline station owners here in Massachusetts got a different memo, though). Also, the surcharges won't be collected for debit or prepaid cards."

Comments

This is good news. Actually.

[140Mandak262Jamuna]

I think credit card companies charging 2 to 3% fees from the retailers for credit card transactions is fair, I think. They advance unsecured loans and assume the liability. But what is so unfair is these banks charge the retailers the same fees even when the buyers use debit card. This is practically cash, and there is no risk of default. The only cost to the banks is cost of collection and fund transfer. That is pennies at most. But still the banks converted the debit cards through credit card processing systems and charged the retailers this unreasonable fees. When there is no difference in cost most consumers scratch a signature on the Point of Sale terminals rather than punching in their 4 digit PIN.

With this change, the retailers are going to give a 1 or 2% discount for people who use pin instead of signatures. Or even if they retain the savings themselves I would like the profit to go to my local retailer, not the too-big-to-jail banksters.

Re:This is good news. Actually.

[Beefpatrol]

I work for a credit union as a programmer. I am fairly involved in card stuff. The 2-4% gets split up between Visa/MC, the bank that is lending the money to the customer, and any other processors / stand-ins along the way. The majority of the amount the lending bank gets goes to reward programs and fraud. For debit cards, most of the fraud gets eaten by the bank / credit union that issued the card because most debit card fraud does not involve using a PIN; in debit card fraud situations, the bank's customer usually gets a refund after filing a dispute. This is why debit card interchange fees are almost as high as credit card fees.

For credit cards, the interchange income the bank receives sometimes does not even cover the cost of fraud and rewards; the rest of the cost is paid for from the CC loan interest. Yes, that means financial institutions sometimes lose money on CC customers even when they don't default. Overall, banks generally do make a profit on CCs even when the card holder pays it off every month, but that profit is no where near 3% of the charges on the card.

gas stations

[neurostar]

(it seems that gasoline station owners here in Massachusetts got a different memo, though)

Despite the fact that the outcome is similar, there's a legal difference between "surcharge for credit" and "discount for cash". The former is/was illegal, the latter is legal. Presumably gas stations in MA and elsewhere are doing the latter.

Re:I'm curious to see how many retailers actually

[Alex Pennace]

If someone swipes/steals [my credit card] information, they're stealing VISA's money, not mine. If I use a debit card and they steal my info, they drain my bank account, my mortgage bounces. That's bad.

It isn't true that Visa eats the cost of fraud in most cases. When you want to reverse a charge, your bank and Visa/Mastercard happily oblige because they usually yank the money straight out of the merchant's account.

You are right that the cardholder has much more leverage to reverse bad charges on a credit card versus debit. After I had left GoDaddy, they made the mistake of hitting my debit account for one more charge. Reasoning with GoDaddy didn't work, so I filed a chargeback through Sovereign Bank. Long story short, Sovereign proved to be completely unable to handle it, and I didn't have the leverage of saying I wasn't going to pay the disputed amount.

Now, nothing has direct withdrawal rights to my money. No entity should have my debit card on file, nor any prior approval for ACH withdrawals. If they want to charge me every month, they do it on the credit card, or I can pay them via bill pay or (occasionally) check. I am aware that a sufficiently determined company can still get access to my checking account, but at least in that circumstance I can expect to be made whole in the end.

California: Surcharge vs. Discount

[ZipK]

Consumers in ten states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas) won't be affected, since laws in those states forbid the practice

California law prohibits adding a surcharge for credit cards, but allows a discount for cash: California Civil Code Section 1748.1. So while consumers in California may not be affected by the change in national law, they're already subject to the possibility of a higher price when using a credit card - and unlike states that will now allow surcharging, California receipts do not break out the difference in price as a separate charge.

Re:Retailers pay your visa rewards

[way2trivial]

I am a small merchant, I do take credit cards.

Prior to change, of my 1.3 million in sales, about 900k was in plastic each year.

3 years ago, I started offering a 3% cash discount (cash discounts were allowable all along)
now my plastic sales come in under 400k, and my net sales are comparable....

My guests decide to pay or not..
some do it for the miles... some do it 'cause it's a work issued card... it works for me and my clientel

Re:I'm curious to see how many retailers actually

[AK Marc]

Having been to places where they can charge surcharges, large chains with ties to the US, grocery stores and gas stations will not surcharge, but small restaurants and owner run shops will charge the surcharge.

Re:I'm curious to see how many retailers actually

[hairyfeet]

The moral of that story is don't use the large banks which I've found generally have shittier service and higher fees anyway. In just about every town in America you have smaller banks and co-ops and they not only have lower fees (my bank charges a whole $1 a month for my debit card flat fee) but they tend to have better service.

So just do your homework and I bet you'll find there are plenty of banks in your area that will be happy to take your business without screwing you on fees.