Merchants can charge credit card fees to customers. But so what?

I was unaware of this until I read DollarVersity’s article that alerted me to a recent ruling against Visa and MasterCard which forces them to allow merchants to pass on credit card fees to their customers.

The settlement was on the order of $6+ billion.  The official site is here.

Can a business charge a credit card fee?  Now they can under some circumstances.

It costs businesses to accept credit cards.  If I buy $5.00 worth of stuff and hand them a $5 bill, they get the full $5.00.  If I charge it, however, they only get maybe $4.70.  The $0.30, which is composed of a flat fee plus a percentage of the purchase price, goes to the credit card company for their role in the transaction.

It used to be that if a merchant accepted credit cards at all, they had to be willing to accept credit cards for all transactions.  Even those transactions that were so small that they resulted in a net loss.

The CARD Act in 2010 placed some restrictions on the rules for merchant accounts. Under those restrictions, merchants could refuse payment with credit cards for purchases of $10 or less.

This new settlement goes even further and sets forth rules that allow merchants to tack on explicit fees for credit card usage, under certain conditions.  This credit card surcharge, also called a checkout fee, appears right on the receipt or bill.  Finally, it appears that many merchants can quit eating the cost of the credit card transactions and force their customers’ hands as to how they pay.

Stores can charge for credit card usage.  Yay.  But do they really want to do that?

Most of my life I’ve been accustomed to being charged the same for credit card purchases as for cash purchases.  That may change in the future.

Small businesses may be claiming victory here.  At the very least they have more options than they did before if they choose to accept credit cards.

But do merchants really want to pull the trigger and tack on a checkout fee?  There are a number of reasons not to do be the first merchant on the block to do this:

  • They can’t easily start charging a checkout fee unnoticed.  If the merchant wants to being charging customers credit card fees, they have to post their intent to do so a full 30 days before charging the fees.  They also must notify Visa and MasterCard at the same time.  So regular customers will know what’s coming, and they’ll have plenty of time to get agitated at the merchant.
  • They can’t hide either the intent to charge for credit card use, or hide the charge itself.  Customers will know going into the transaction that they’ll be charged extra if they use their credit card, and they’ll see it spelled out on their receipt.  More calling attention to the fact that the merchants have passed on their expenses explicitly to the customers.
  • They can’t make money on the charge.  The charge can either cover the cost of the discount fee (the fee that the merchant is charged by the payment processor) or 4%, whichever is less.  In other words, they cannot directly profit from people using their credit cards to buy things.
  • They must treat all locations the same.  If they choose to surcharge at one location, they must surcharge at all locations (assuming they’re allowed to surcharge at all locations).  They can’t target specific locations for the surcharge.  (My regular gas station won’t be able to charge credit card fees because it has locations in states for which surcharging isn’t allowed.)

I think merchants will get more than they bargained for if they surcharge.  Whether they charge customers explicitly or whether they raise their prices to cover the costs is just accounting, but it’s been shown that people buy more (on average) if they whip out a credit card instead of a debit card or cash.  A surcharge would discourage this profitable behavior.  A surcharge could also chase customers away entirely (until all of their competitors are surcharging, anyway).

Anway, I agree with DollarVersity in that there won’t be a huge rush to surcharge.  But there will be some of it, and it will make buying things more costly, or at least more complicated.

Have any of you run across any stores that charge credit card fees to their customers?  (I haven’t yet.)

Update:  Also check out more here.

John Wedding

Husband. Father. Web publisher. Musician. John has blogged at Mighty Bargain Hunter since 2005, helping people to recognize the good deals in life.

More Posts - Twitter - Facebook - Google Plus


  1. For now it seems merchants will be in wait and see mode, but if one or more determines that they can institute the fees and come out ahead, you bet they’ll try it, and if it does work, the line will be out the door for other merchants to follow suit.

  2. Maybe in the interest of fairness, there should be a cash discount! I think most store owners use the cash as a way to fofset the charge fees. I think ther eis no harm is asking, particularly when it is a big purchase.

  3. I have seen cash discounts forever — will it be much different? I don’t think so.

  4. John Wedding says:

    @Money Beagle: Exactly correct. Like dominoes falling.
    @Krant & @Kathleen: The irony is that cash discounts were always allowed with merchant accounts. It was the only way to pass on the savings to the customers. In essence it’s charging more for credit transactions anyway. But it’s a matter of perception I guess.

  5. So far I haven’t seen any merchants add the surcharge. The small brick and mortars that I know have told me they don’t intend to add surcharges because they have already taken the charges they pay into account in their pricing structure. Still, I think that consumers be aware of this and know that it is possible for them to be hit with a surcharge.

  6. Retailers refusing cards for making small transactions will increase, but thats about it, I suspect.

    Though there will probably be new ways to encourage cash transactions. I’ve recently seen gas pumps that accept cash at the pump. Eliminating having to pre-pay an attendant, and streamlining gas transactions.

  7. Agreed that it “looks” bad for merchant business, but once a few retailers start to charge the fee, customers will pay it. Why do I say this? What consumers say and what they do are very different things. I worked in bank marketing for many years, and we made HUGE profits off of customers paying fees that they really didn’t have to: ATM, Overdraft, service fees, etc. Consumers love to say “I’ll never pay that,” but when push comes to shove, many aren’t as steadfast as they claim…

  8. The funny thing is it’s only the tiny retail atores and service providers that even have to think about doing any of this. Between the state laws and the merchant agreements, the majority of places where people shop are prohibited.

    Personally, I won’t take the liberty to cover my own costs for taking credit cards as I see it as a small cost of doing business. On top of that, it makes no sense to turn away potential business from the credit card using part of the population

Speak Your Mind