Credit Card Surcharging by Merchants Begins Posted by AVCU on 12:45 PM

New rules allowing merchants to assess "check out" fees or surcharges on credit card purchases took effect in all but 10 states this week. The surcharge rule change is one result of a 2012 interchange fee class action lawsuit settlement between VISA/MasterCard and a merchant coalition. The surcharging aspect of the settlement and the provision that consumer-owned credit unions might experience a temporary reduction in interchange revenue are signs that the settlement does nothing for consumers, according to CUNA.

As CUNA President/CEO Bill Cheney explained last year, "We all know that interchange revenue enables credit unions to provide essential and cost-effective credit card services to their consumer members. We also know that the temporary reduction in interchange revenue that credit unions will experience will not likely find its way into the pockets of consumers, but will more likely into those of merchants."

Visa and MasterCard rules previously prohibited merchants from charging surcharges on credit card purchases. The new surcharges could be as high as 4% of a given transaction, and may be charged in 40 states. California, Texas, and New York are among the ten states that forbid merchants from assessing surcharges for credit card use. The surcharges cannot be applied to debit transactions.

Merchants can decide whether or not they want to assess the surcharge. Toys-R-Us and Target are among those that have said they will not charge a credit card fee, NBC News reported. Among widespread news reports and industry analysts this week, it is widely assumed that new checkout fees by merchants will not get much traction due to competitive pressures and the economy. The exception might be convenience stores, but even in those cases history points more to cash discounts for gas purchases, not surcharging for credit.

As for the temporary reduction in credit card interchange, it is equal to 10 basis points paid by merchants for a period of 8 months that, according to one source, is expected to span from July 2013 to March 2014. So, a credit union typically earning 180 basis points would earn 170 basis points during this time frame. 

One estimate of the cumulative impact of the 10 bps reduction in credit interchange by all card issuers nationwide is $1.2 billion, $50 million of which is estimated to be among the nation's credit unions.