published Wednesday, January 30th, 2013

Personal Finance: Don't worry about new credit card fees

By Chris Hopkins

By now you have heard about the new rules allowing merchants to slap a 4 percent surcharge onto purchases you make using Visa or Mastercard.

Well, forget about it.

It is true that starting Sunday, retailers who accept the two most ubiquitous cards now are allowed to add a surcharge to cover fees they pay to those card companies.

This is one element of a $7.2 billion antitrust settlement involving Visa, Mastercard and several large banks over price-fixing allegations. In addition to a $6 billion cash payment and $1.2 billion in fee relief, the deal also allows merchants to add an extra charge to cover the transaction cost.

But don't expect any nonsuicidal retailer actually to try it.

Stores that accept credit cards must pay a fee to the card issuer, typically between 1.5 percent and 3 percent of the transaction amount. These so-called interchange fees exceed $50 billion per year.

Heretofore, the contract between the stores and the card companies prohibited explicit surcharges. In settling the price-fixing case, Visa and Mastercard dropped their objection to add-on fees.

But for a host of reasons, it will not happen.

Ten states including California, Florida and New York, have laws prohibiting surcharges, effectively

placing 40 percent of the U.S. population out of reach. (Tennessee, Georgia and Alabama do not have such laws).

Also, the card companies' own arcane restrictions require that merchants in every state be treated identically. This means that any establishment with a location in one of the restrictive states may not assess the fee in any of its other U.S. locations. Too bad, Walmart.

Meanwhile, American Express has its own rules that require parity with Visa and Mastercard from its merchants, and does not allow surcharges (they are not a party to the settlement). So if a store accepts AMEX, it may not inflict a fee upon any of its customers.

But the bottom line is that retailers don't want to lose business, and they understand that shoppers are unwilling to tolerate another aggravation levy. Remember the ill-conceived attempt by some big banks to charge you a fee for using your debit card?

Several large retailers, including Target, Home Depot, Walmart and Sears, have indicated they will not assess card fees. And according to the National Retail Federation, not one single member of their association has expressed an interest in tacking on the charge. One possible option might be to offer a discount for cash or debit cards, similar to what some gas stations offer, but no one has floated the idea so far.

Just in case some sellers actually lose their minds, you will have plenty of warning. Merchants must post a notice of the surcharge at the store entrance, at the point of purchase, and on every sales receipt. Online retailers must post a notice on the first page that mentions credit cards.

And bear in mind that the interchange fees are already built into the cost structure of the goods you purchase. So don't expect to see an extra fee any time soon. Charge!

Christopher A. Hopkins CFA, is a vice president at Barnett & Co.

If you find a retailer adding on the surcharge for credit card use, let us know by calling 423-757-6340 or sending an email to dflessner@ timesfreepress.com.

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