Though the tussle over debit card swipe fees appears to be over, the battle over credit card swipe fees has just begun. A number of merchants nationwide are trying to institute credit card surcharges, as paying the credit card companies is costly to them.
Merchants losing a lot without credit card surcharges
In the past few years, there was a big ruckus raised over debit card swipe fees or interchange fees as they are called. When customers use a debit card to pay for goods or services, merchants have to pay a percentage of the transaction to the bank for the bank to actually clear the transaction. The Federal Reserve capped those transaction charges for debit cards last year, which banks weren’t happy about.
However, the cap did not cover similar charges by credit card companies. Visa and Mastercard both assess swipe fees on merchants. According to Daily Finance, credit card companies typically charge about 3 percent of the transaction to clear payments to merchants, which some retailers account for with credit card surcharges or fees for using a credit card. Not all states allow the fees, though.
Court battle looming
Currently, a lawsuit is proceeding before a federal court in New York over credit card surcharges. Merchants are suing for the right to offer customers paying with methods other than credit cards. Credit card companies prohibit them from doing so if they want to be able to do business with credit card companies. A trial date is set for September but, according to Time magazine, reports are emerging that Visa and Mastercard, the two credit card companies involved in the suit, are close to settling the case.
The swipe fees are not exactly fair to retailers, according to the Christian Science Monitor. American merchants pay more credit card interchange fees than merchants in any other developed country. On top of that, the swipe fee is different for different merchants; the most basic cards usually have the lowest fees, but the most premium or specialized card usually carries a higher fee. Each transaction costs a few dollars at most, hardly enough to send a business running for installment loans, but over time it adds up.
NerdWallet found in a study, according to the CS Monitor, that out of the 35 most developed countries, only seven have a maximum credit card interchange rate of more than 1 percent. In the U.S., it’s 2.35 percent, the highest of all. The next closest was Canada, where the maximum is less than 2 percent.
Surcharges only disallowed in 10 states
Currently, only 10 states prohibit merchants from assessing credit card surcharges, although in some states, some can charge “convenience fees” or grant discounts for paying with cash. New York and California are among those states.
There’s no telling whether the lawsuit will play out in merchant’s favor, but a lot of large companies, including Safeway and Payless Shoe Source, are among the plaintiffs asking for the right to assess fees or offer incentives to customers to not pay with credit cards. If it does, credit card usage fees might start cropping up. Then again, if the card companies didn’t charge them or didn’t charge as much, there might not have been a problem.