Visa, Mastercard To Give Merchants Permission To Pass On Swipe Fees To Customers

Visa and MasterCard have long had a policy in which transaction fees can not be passed on to consumers via an extra charge. For example if you buy a $5 item and there is a $.35 swipe fee and 2.5% transaction fee those charges remain with the seller. Now following a $6 billion lawsuit settlement those credit card providers are planning to allow for credit card transaction fees.

Under the new proposal the Electronic Payments Coalition says banks, credit unions and payment card networks will be able to charge fees equal to the cost of the transaction fees.

To introduce the fee retailers will need to add the surcharge at the point of store entry, during the transaction at a point of sales system and on the customers actual receipt.

In some states where law prohibits credit card surcharges nothing will change in the immediate future. States that refuse the charges include New York, California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas.

The announcement comes after a judge and jury determined that the major credit card providers were colluding to keep swipe and transaction fees high for retailers, ensuring a high return on profit.

Unlike Visa and MasterCard competitors American Express and Discover have never prohibited merchants from charging extra fees, they do however prohibit restrictive fees if other competitor cards do not carry a charge, thus stopping additional costs because of Visa and MasterCard’s own prohibitive practices.

While many retailers may choose to forgo the additional charges for fear of losing customers, those same retailers may charge for lower priced transactions. For example a $.75 pack of gum placed on a credit card with $.35 swipe fees typically means a loss for the retailer. By charging fees on lower priced items retailers can avoid losses while keeping costs down for consumers purchasing larger items which typically help recover store losses.

Not everyone is happy with the decision, the National Association of Convenience Stores (NACS) and the National Association of Truck Stop Operators (NATSO) have rejected the settlement, claiming that the new protocols will not do enough to introduce transparency into the transaction process. The retailer groups claim Visa and MasterCard will still control what additional information consumers can actually see.

Update/Correction:

Lisa Mullings, president and CEO of NATSO has released the following statement:

“NATSO will carefully review the impact of the settlement and will examine whether it will go far enough in fixing this broken system. The size of this monetary award will make headlines, but we must carefully evaluate whether the settlement goes far enough to ensure competition and transparency in the credit card industry.”