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Merchants allowed to add surcharge if you pay with credit

Consumer Reports News: July 16, 2012 05:08 PM

A legal settlement Friday between credit card issuers and merchants will allow stores to apply a surcharge at checkout if you pay with credit. Previously, major credit card issuers, such as Visa and Mastercard, didn't allow merchants to charge such fees.

When you choose credit at checkout, you're increasing the store's cost of doing business because merchants have to pay an interchange fee, or so-called swipe fee, to credit card issuers when plastic is used as payment. The fee covers the cost of processing the transaction. The settlement doesn't cover debit card transactions.

In addition, the antitrust settlement requires major banks, Visa, and MasterCard to pay more than $7 billion to some 7 million retailers that accept Visa and MasterCard, and reduces the swipe fees that merchants have to pay to credit card issuers for eight months, according to news reports.

According to an attorney for the retailers in the settlement, few stores will charge consumers more for credit-card purchases based on this ruling. In an interview with USA Today, co-lead counsel for the plaintiffs Craig Wildfang said that when credit-card surcharges are allowed in other countries, retailers seldom slap them on credit-card purchases. Instead, credit-card companies have sometimes agreed to lower the amount they charge the retailer per transaction.

According to others, consumers that use credit cards with rewards programs attached to them could see cuts to such programs. Swipe fees associated with these types of cards have generally been the highest for merchants, revenue from which credit card issuers used to cover the cost of offering rewards programs. Therefore, a reduction in swipe fees could lead to a reduction in credit card rewards, according to, a credit card comparison site.

The settlement still needs to be approved by the U.S. District Court, which means it could be the end of 2012 or later before merchants can actually start charging customers a surcharge for plastic.

There are 10 states, including New York, California, and Texas, that have laws prohibiting merchant surcharges, according to the Wall Street Journal, which means this settlement will not alter credit card transactions and their corresponding fees in those states.

To pick the right credit card for your spending habits, see our credit card buying guide, which includes common credit card gotchas to look out for.

Visa, MasterCard settle dispute for $6B [USA Today]
Q&A: How the Credit Card Settlement Affects You [Wall Street Journal]
Credit Card Users Could Lose in Swipe Fee Settlement []

Maggie Shader

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