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Merchants in 40 US States May Soon Impose Credit Card Surcharges


Effective January 27, 2013, merchants in the United States and its territories around the world will be allowed, if they wish, to impose a surcharge on all transactions paid for with a credit card. This so-called "swipe fee" or "checkout fee," which is designed to cover the merchant's cost of processing that payment, must be equal to or lower than the fee the merchant pays to its credit card processor.

Why Are Surcharges Now Permitted?

In 2012, MasterCard and Visa reached a legal settlement with merchants and banks that included this change to their surcharge policies. Previously, neither MasterCard nor Visa permitted merchants to impose surcharges. The new rules allow surcharges of up to 4% of the transaction amount, although, in most cases, the surcharge is more likely to be in the 1% to 3% range.

How Will I Know Whether My Merchant Is Surcharging?

Merchants must notify their customers of their surcharge policy before the transaction takes place. In a brick-and-mortar store, the merchant must post a sign at the store entrance announcing that a surcharge will apply to credit card transactions and provide the same information at the point of sale. Online merchants must inform customers of credit card surcharges on their websites. In both cases, the transaction receipt must display the surcharge as a separate line item.

How Much Will My Surcharge Be?

That depends. Both Visa and MasterCard will now permit merchants to impose a surcharge either by brand (the surcharge for all Visa transactions, for example, would be the same percentage of the transaction total) or by product (different surcharges would apply for different types of Visa or MasterCard credit card types). Visa and MasterCard have created charts for merchants and consumers to use to determine surcharge percentages by brand and by product. Typically, surcharge percentages range from 1.5% to 2.75%. Both MasterCard and Visa prohibit merchants from imposing surcharges over 4%.

Are Surcharges Legal?

Credit card surcharges will now be legal in all but 10 states. If you live in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma or Texas, your merchants may not impose a surcharge on credit card transactions.

Are Merchants Required to Impose Surcharges?

No. Each merchant must weigh the costs and benefits of adding a swipe fee surcharge. The costs, in terms of consumer satisfaction and reduced sales, may outweigh the benefit of making customers pay for credit card payment processing.

Do I Have Any Other Options?

To avoid credit card transaction surcharges, you can pay with cash, a check, a prepaid credit card or your debit card. Merchants may even offer you a discount if you pay with cash; some gas stations already do this.

You should be aware, however, that consumer protection laws are not the same for debit cards as they are for credit cards, particularly for unauthorized credit card charges and debit card use. In addition, hotels and rental car companies routinely place holds on debit card transactions; this means that, in addition to the expected cost of your stay or rental, your bank will "hold," or freeze use of, an additional amount, perhaps $200 to $400, or require a cash deposit, until the transaction is processed. You will not be able to use that money for anything else until your trip is over and the hold is lifted.

Also, if you normally pay for rental cars with a credit card to avoid purchasing collision damage waiver insurance, you will now have to find out whether your rental car company plans to impose a surcharge on credit card transactions and compare that cost to the cost of CDW insurance.

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