Merchants May Win the Right to Charge Credit Card Users More

Visa and mastercard surcharges
Visa and mastercard surcharges

The cost of paying with plastic may be about to rise, giving pause to those consumers who use credit cards to make small, everyday purchases.

That's according to The Wall Street Journal, which reports that a lengthy legal battle between a group of retailers and the world's two largest credit card networks, Visa (V) and MasterCard (MA), may be nearing an end. The merchants have long sought the right to charge customers more for paying with a credit card, which would help them defray the cost of accepting plastic. (Merchants have to pay each time a customer swipes his or her card at their business.) But the card companies have banned this practice in the standard agreements businesses must sign in order to accept credit and debit cards.

Now, according to the Journal, "That ban is expected to be eliminated or altered," as a part of a potential settlement that seems to be in reach, ahead of a September trial date. The litigation includes more than 50 lawsuits brought since 2005, by companies including Payless ShoeSource (PSS) and Safeway (SWY), which were recently consolidated in U.S. District Court in Brooklyn, New York.

The suits allege that Visa and MasterCard conspire to set the fees that merchants must pay each time a customer uses a credit card, thereby engaging in anti-competitive behavior. Swipe fees for debit cards were halved last year under a provision of the Dodd-Frank Financial Reform Act, but the charges associated with credit card use, known as interchange, were left untouched.

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According to, "Visa and MasterCard usually charge a small portion of a total purchase price just for handling" credit card transactions, "usually about 3 percent -- and merchants say this costs even small businesses tens of thousands of dollars per year." This sizable expense explains merchants' eagerness to add surcharges to credit card purchases.

Visa and MasterCard have already had to make changes in how they deal with merchants. Last year, as part of a settlement with the Justice Department, the credit card colossuses consented to back away from a ban on merchants' offering discounts and other incentives to customers who use lower-cost cards or cash.

But lifting the ban on surcharges would be a much more dramatic change, potentially making it more difficult for the heaviest credit card users to pay down their debts. As Time's Moneyland blog notes, "Americans threw a collective fit last year when banks wanted to charge us to use our debit cards. How will we respond to the idea of paying more to use credit cards?"

In fact, 10 states already have laws prohibiting surcharges, New York and California among them. Whether merchants in those states would be able to introduce the extra fees, should Visa and MasterCard agree to them, is still unclear.

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