3 Reasons Why Credit Card Surcharges Are an Empty Threat

credit surcharges
Long-suffering businesses have won a big concession from credit card networks Visa (V) and MasterCard (MA): the right to add surcharges on customers who use their cards. But despite warnings that new fees may come soon to a store near you, the impact of the antitrust settlement won't be nearly as big as some fear.

Reason No. 1: Cash discounts never really caught on.

Merchants may have won the right to add surcharges for credit card purchases, but nothing was stopping them from giving cash discounts before. In fact, look in the right places, and you can still find a few gas stations that charge different prices per gallon for cash and credit.

Most retailers never followed suit, even though big chains had a lot more to gain from doing so than the corner convenience store. That's because there is a lot of confusion when you have a two-tiered pricing system -- especially if it comes off as a bait-and-switch tactic (e.g., "Sorry, that advertised price is for cash purchases only"). It's just not worth the potential damage it can cause to a store's reputation.

Reason No. 2: It's bad business.

Studies show that customers tend to spend more when they use credit cards. So by encouraging customers to use cash instead, businesses could well succeed in cutting their sales by far more than the benefit of any surcharges or savings in credit card transaction fees.

In fact, a MasterCard representative told Forbes that he "anticipate[s] that [merchants] will not impose checkout fees, particularly because the value merchants derive from card acceptance far exceeds their costs." Trying to get customers to pay for that value could well anger cash-strapped shoppers and drive them elsewhere.

Reason No. 3: It's illegal in some states.

Even with the settlement, it's against the law to tack on surcharges to credit card transactions in 10 states. That may not sound like many, but among them are the four most populous states in the nation: California, Texas, New York and Florida.

Is it worth it if a store tacks on a credit card surcharge?

Some of the benefits of using credit cards may outweigh the cost of paying a surcharge. Credit cards offer features such as fraud protection for your purchases and easier expense tracking. Moreover, with limited liability in case of theft, you're less of a target than if you're carrying around large amounts of cash.

Finally, many businesses see accepting credit cards as a convenience for their customers that's worth the cost to their bottom lines. Especially in a fragile economy, retailers aren't likely to do anything that might jeopardize sales.

You can follow Motley Fool contributor Dan Caplinger on Twitter here. He doesn't own shares of the companies mentioned. The Motley Fool owns shares of MasterCard. Motley Fool newsletter services have recommended buying shares of Visa.

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I am interested in the top ten states that have banned the practice of checkout fees. You only mentioned California, New York, Florida and Texas. I would appreciate a reply as soon as possible, Thank you.

January 25 2013 at 11:38 AM Report abuse rate up rate down Reply

Well, I hope they have to tell you upfront that they are charging a check out fee. If so, I will go elsewhere or pay cash which means I will buy less. Their loss not mine. It will help me budget myself better rather than whipping out the credit card.

January 24 2013 at 2:28 PM Report abuse rate up rate down Reply

We have been witnessed that credit card due payments are not yet recovered after years, so after surcharge issues most of the customers are think twice before flashing their cards in various stores, so every credit card should carry some amount of surcharge, most of the credit card companies are termed the empty threat to the customers in regarding the use of credit cards, which seems to be found illegal, in fact every credit card holder should more concern on their purchase and charging surcharge.


August 11 2012 at 6:57 AM Report abuse rate up rate down Reply

Wait, don't businesses factor in costs when they price products and services, and aren't any additional fees charged by Visa or MC factored into that,"Profit margin" (which can be any amount, it's not set by government or anyone)? I always expect it was done looonnggg ago when this argument 1st came up and was eventually dropped, i.e., the blatant add on charge for using a credit card. It was pretty much decided by merchants that if they charged a fee, customers would go to a competing store that did not charge one. So if they start charging an add on fee now then won't we be paying twice...the one factored into pricing and the one added on at sale time?!

July 19 2012 at 9:17 AM Report abuse rate up rate down Reply
2 replies to mikely48's comment

You are right Mikely. Business include all costs of doing business in their selling price. I would not purchase if a merchant didnt accept credit cards. I might negotiate with the local landscaper becasue Im paying cash and he is probalby not reporting it. If some local merchant tried adding on a fee for credit card he will probalby find the the competition is going to steal away his business. If I was a store owner I would put up a giant sign............NO FEE FOR USING CREDIT CARDS
The only person to add on the fee for credit cards is the stupid ones. They will be out of business soon anyway.

July 19 2012 at 4:25 PM Report abuse -1 rate up rate down Reply
1 reply to Rickrak's comment

As a business owner I will begin to implement a 5% surcharge on all credit cards once approved by the Federal courts. It always bothered me that people using credit cards got a discount relative to the people who paid in cash or used a check. I currently have a 5% cash discount which many people take advantage of.

I've educated my customers about the costs of credit cards that the merchant absorbs because very few understand the costs involved in accepting them, especially those reward cards which I really hate. It pisses me off that most card holders actually think the credit card company is giving them the reward when in reality it's the merchants who are paying for their rewards.

It's disturbing to hear the propaganda from credit card companies, especially about how it's discriminatory to make credit card users pay more for goods and services, but the fact is they're getting a discount while cash and check paying customers are the ones who are being discriminated against!

Once my customers understand this they are more than happy to pay using cash or a check. It sad that few other merchants follow this strategy. When I'm a customer I always try negotiating a cash discount the problem is most of the time I'm dealing with associates who don't have the authority to discount my purchases. When I explain to them why I should get a discount, most are shocked that the credit card companies are so abusive in skimming money from the merchant. The fact is these credit card companies are nothing but parasites.

So as someone who has a lot of experience as a merchant, I call BS on this entire article.

August 15 2012 at 12:11 PM Report abuse -1 rate up rate down

No mikey you're WRONG! See my comment below to Rickrak.

August 15 2012 at 12:14 PM Report abuse -1 rate up rate down Reply
1 reply to percolator's comment

No Percolator, you're wrong, so do it and you will find out quickly how wrong you are. Cash and checks are instruments of the past and you will immediately reduce your customer base with a 5% CC surcharge (unless you are in a business with zero competition). If you aren't already including the cost of the cards into your pricing, shame on you. Vias has been around since 1966! Also, if you look around, you will find that there are lower cost options to the exorbitant fees charged by the big guys - smaller credit processors like Remote Swipe. PowerPay, etc.

August 22 2012 at 5:07 PM Report abuse rate up rate down