3 Reasons Why Credit Card Surcharges Are an Empty Threat

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Long-suffering businesses have won a big concession from credit card networks Visa (V) and MasterCard (MA): the right to add surcharges on customers who use their cards. But despite warnings that new fees may come soon to a store near you, the impact of the antitrust settlement won't be nearly as big as some fear.

Reason No. 1: Cash discounts never really caught on.

Merchants may have won the right to add surcharges for credit card purchases, but nothing was stopping them from giving cash discounts before. In fact, look in the right places, and you can still find a few gas stations that charge different prices per gallon for cash and credit.

Most retailers never followed suit, even though big chains had a lot more to gain from doing so than the corner convenience store. That's because there is a lot of confusion when you have a two-tiered pricing system -- especially if it comes off as a bait-and-switch tactic (e.g., "Sorry, that advertised price is for cash purchases only"). It's just not worth the potential damage it can cause to a store's reputation.

Reason No. 2: It's bad business.

Studies show that customers tend to spend more when they use credit cards. So by encouraging customers to use cash instead, businesses could well succeed in cutting their sales by far more than the benefit of any surcharges or savings in credit card transaction fees.

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In fact, a MasterCard representative told Forbes that he "anticipate[s] that [merchants] will not impose checkout fees, particularly because the value merchants derive from card acceptance far exceeds their costs." Trying to get customers to pay for that value could well anger cash-strapped shoppers and drive them elsewhere.

Reason No. 3: It's illegal in some states.

Even with the settlement, it's against the law to tack on surcharges to credit card transactions in 10 states. That may not sound like many, but among them are the four most populous states in the nation: California, Texas, New York and Florida.

Is it worth it if a store tacks on a credit card surcharge?

Some of the benefits of using credit cards may outweigh the cost of paying a surcharge. Credit cards offer features such as fraud protection for your purchases and easier expense tracking. Moreover, with limited liability in case of theft, you're less of a target than if you're carrying around large amounts of cash.

Finally, many businesses see accepting credit cards as a convenience for their customers that's worth the cost to their bottom lines. Especially in a fragile economy, retailers aren't likely to do anything that might jeopardize sales.

You can follow Motley Fool contributor Dan Caplinger on Twitter here. He doesn't own shares of the companies mentioned. The Motley Fool owns shares of MasterCard. Motley Fool newsletter services have recommended buying shares of Visa.
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