Should You Be Using Your Credit Card Less?

Nine months ago, I asked readers whether they should be using their credit card more. It was during the period in which large banks such as Bank of America (NYS: BAC) , JPMorgan Chase (NYS: JPM) , and Wells Fargo were introducing swipe fees charged to customers, after a law reduced how much those same banks could charge merchants for debit-card transactions.

The new swipe fees provoked tremendous outrage, especially among Occupy Wall Street protestors, and many others who had lost faith in the global banking system. Bank Transfer Day called for people to move their accounts from large banking institutions to credit unions. And eventually, all of the fees, whether rolled out nationwide or in small pilot programs, were rolled back.

It was an exact reversal of banking initiatives a mere two years earlier when, at a time when credit card debt write-offs were at an all-time high, banks encouraged their customers to use debit cards through rewards and other perks typically relegated to credit cards.

Deja vu all over again
But a new settlement once again determines how banks and merchant can charge fees, and the customer's right to know what those fees are, and when they'll be charged.

Visa (NYS: V) and MasterCard (NYS: MA) have proposed a $7.25 billion settlement in a price-fixing case over swipe fees. The class-action suit was brought on behalf of nearly 7 million merchants in the U.S., who claimed that MasterCard and Visa had conspired with banks to fix swipe fees and by doing so violated antitrust laws. Banks make nearly $40 billion a year on swipe fees, some of which is used to fund rewards programs such as cash back and points.

Under the settlement, merchants would be empowered to pass the swipe fees they pay large banks onto their customers by imposing a surcharge on credit card purchases. They'd also be able to tell customers of this practice, as well as the price difference for cash transactions.

Different prices for cash or credit transactions isn't a new concept; it's a familiar practice at gasoline pumps around the country. But theoretically, the practice could now spread to all types of retailers.

Mitigating impact
In reality, though, the settlement will most likely have little to no effect. Ten states already have laws prohibiting surcharges. American Express (NYS: AXP) , although not involved in the lawsuit, claims that 50% of its business comes from those 10 states. Furthermore, AmEx has an agreement with merchants that requires parity among surcharges; for instance, an American Express cardholder can't be charged more or less for a transaction than a customer carrying a MasterCard, for example.

But for credit card companies to make money off swipe fees, customers have to actually be swiping them. American Express just released its second-quarter numbers with a not entirely unexpected missed revenue margin. The company blames low consumer confidence, which is at its lowest point in the past seven months, and continually dropping U.S. retail sales. American Express caters to the more affluent consumer, a population that has so far weathered the downturn. Therefore, it's typically held as a bellwether for how confidence levels of the more ably financed are faring.

The Foolish bottom line
So, should you be using your credit card less? The same advice applies as when I asked if you should be using it more: Be aware. Keep an eye on purchases (and purchase prices), know your credit card terms, and watch your statements carefully.

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Fool contributor Molly McCluskey doesn't own shares in any of the companies mentioned. Follow her travel and finance tweets on Twitter,@MollyEMcCluskey. The Motley Fool owns shares of MasterCard, JPMorgan Chase, and Bank of America and has created a bear call spread position in American Express.Motley Fool newsletter serviceshave recommended buying shares of Wells Fargo and Visa and creating a write covered strangle position in American Express. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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