Washington Report: Smoke and Mirrors on Surcharging

Scare tactics to drum up fear in consumers about retailers being able to surcharge is nothing more than credit card industry propaganda.

January 30, 2013

HACKENSACK, N.J. - "Merchants have no desire to surcharge and no plans to surcharge," said J. Craig Shearman, a vice president of the National Retail Federation, to The Record. "The concept of widespread surcharging is purely card industry propaganda."

News of retailers being able to surcharge comes in light of the proposed antitrust settlement, "In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation," that includes a $7.2 billion payment and several minor modifications that include the ability to surcharge. A majority of the named plaintiffs ?" including NACS ?" have rejected the terms of the settlement. Although the proposed settlement has yet to reach final approval, the 10 pages of detailed regulatory rule changes allow surcharges to take effect.

So, as of Sunday, January 27, retailers are now allowed to add fees to try to recover the outrageous swipe fees they pay for credit card transactions. There are, however, very difficult hurdles to overcome related to actual implementation and consumer misperceptions, making it unlikely that many retailers will be surcharging any time soon.

Retailers are allowed to charge their customers a fee that is roughly equal to the amount that they are charged in swipe fees, which ranges between 1.5% and 4%, based on a variety of factors. But if retailers want to assess a surcharge, they must first communicate their intent to Visa and/or MasterCard at least 30 days prior to implementing a surcharge program, at either the credit card product or brand level (but not both). They must also provide prominent notices about these fees ?" both at the entrance and register. The surcharge amount also must be identified separately on the receipt. Read more on surcharging.

However, contrary to what the card companies are saying, it??s not likely that retailers will surcharge for a variety of reasons. For example, 10 states that represent 40% of the market have laws prohibiting surcharging: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Walmart, the nation??s largest retailer, says that it has no plans to surcharge: "We're not interested in surcharging customers in order to allow credit card companies to continue charging unfair fees," said Walmart spokesman Randy Hargrove.

"The bottom line is that very few retailers would be able to surcharge under the settlement, and that the vast majority don't want to surcharge even if they could," the NRF's Shearman told CNBC.

Ed Mierzwinski, director of consumer programs at U.S. PIRG agrees: "In the brick-and-mortar world, no one who does any sort of volume business is going to want to surcharge because it will drive their customer crazy and slow down transactions," he told CNBC.

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