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For those who pay with a credit card, your purchases just got more expensive.
A recent change to Visa and MasterCard regulations removes restrictions on vendors and businesses which allows them to charge consumers a surcharge fee when paying with credit cards. This fee has always been there, we just never noticed it because it was absorbed into the price of the item.
Credit cards will cost you more than cash
When paying with a credit card or using a debit card in the non-pin function (swipe-and-sign), a surcharge equal to the merchant’s processing fee can be added to the total. These fees can range from about 1.5 percent up to 5 percent, but merchants are capped at charging the consumer more than 4 percent.
Establishments must post a sign visible to consumers at the front entry door and at the checkout stand, or must be visible online when credit card payment options are presented.
You were charged more before the surcharge
Processing fees have been added to the price of goods and services for decades, we just have never seen them. The sale of a $100 item at a store that is charged a 3 percent processing fee will cost the merchant $3.00 when running the approval through the credit card system. Because these charges have never been itemized on our bills we never noticed them.
The merchant had to build this fee into the price of the item in order to make a profit – and to stay in business.
Cash is cheaper than credit cards
Even though we may have paid with cash or checks, we were paying the inflated cost of the item all along. However, retailers are now able to encourage the use of cash and checks (or debit with PIN) by offering a discount. Would you turn down an “immediate rebate” of $3.00 if you paid with something other than a credit card?
Can debit cards be charged a surcharge?
No. The recent change in regulations does not allow merchants to impose a surcharge for debit cards when they are used in the ATM/Debit function (with a 4-digit PIN). These transactions flow through a different processing system and are not governed by the same policies. This is one more reason why debit cards are better than credit cards.
Does this effect the Zero Liability Policy on debit cards?
It doesn’t. You have the same Zero Liability Protection when using a debit card like a credit card. If your number is ever used without your authorization then you are not responsible for the charges.
How to use a debit card responsibly
There are three reasons I use my debit card like a credit card:
- For the added protection from the Visa and MasterCard system
- When I don’t have control of my card (like a restaurant)
- To earn PerkStreet cash-back or rewards (Update: No longer available)
I do choose to use my debit card with the PIN number when shopping in local establishments that I care about. I loved the small business owners at my daughters Tae-Kwon-Do club. I chose “Debit” when paying the monthly fee – and probably saved them $2 a month. That is not a lot of money, but it adds up quick when you consider there were 20-30 other kids in the dojang.
This is more theory than practice
While I will re-think my choices when paying for things with my debit card, this won’t change the way most people pay for stuff. Why? I really don’t think retailers are going to start imposing a surcharge fee. It has always been a cost of doing business, like payroll and electricity, and built into the price for decades. To drastically change the way cashier process payments and to single-out credit card consumers would be bad marketing and could drive people to their competition.
I would like to see more merchants offer discounts to cash and debit card consumers. It would incentivize more people to pay with a medium of exchange that has limits, offers them a way to stay on-budget, and ultimately pay attention, not interest. It’s a win-win for everyone.
What about you? How will you pay for things differently at locations that charge a surcharge for charge cards (say that three times fast)? Please leave your thoughts in the comments below.
Great information Steve. My feeling is that instead of implementing the 4% surcharge on credit card purchases they’ll instead just raise prices 4% on everybody and gives discounts to those who use cash.
I use the Chase Freedom card which gives 1% cash back on all purchases, and 5% in categories that change each quarter. I use a PenFed Platinum Cash Rewards Visa that gives 5% cash back on all gas purchases. As long as these cash back percentages are higher than the surcharge, I’ll continue to use them. If the surcharge costs me more than I would have earned in credit card rewards, I’ll use my debit card.
@Chad Warner That’s a lot of work – do you keep track of all this on your phone or something? I guess you could find a way to earn a bit more on the gas purchases, it’s not like you pump an extra gallon because “I deserve it”, but ultimately you are paying for the surcharge one way or another at retail locations. The only difference is if they do it on top of the price or build it into the price.
@MoneyPlanSOS It’s not much to remember. The PenFed always gives 5% on gas, and that’s all I use that card for, so that’s easy to remember. I use the Chase Freedom card for all other credit purchases, and it gives at least 1%, which is also easy to remember. The only thing I need to think about is which Chase Freedom categories are active, and there are only 2-3 per quarter, so those aren’t difficult to track. They list the categories for the year at https://creditcards.chase.com/freedom/Default.aspx.
Thanks for the information Steve. I think putting the surcharge there would be counterproductive for retailers. It’s like you said, it was always there I just did not see it. But much like baggage fees with airlines, they might just choose to let everyone know anyway.
Steve,
Thanks for helping unravel the new rules—It seems the only way to avoid this confusion is to always pack cash.
I’m curious if any big online retailers like amazon will change their policy?
I don’t believe you will be seeing this in retails stores. They already built it into the price – why would they want to upset customers by putting a sign up saying “we’re going to charge you more if you pay with credit”. Credit card paying customers have never been educated about the way this all works so they would take this as an insult, feel that they are being treated unfairly, and shop elsewhere.
The only thing we could see is a discount for cash customers and surcharge for higher-end and lower-visible places. Example: The horse ranch we go to charges a 3% fee for paying with credit or debit. We pre-payed most of the trip by check before our vacation and the remaining balance with another check. Saved us about $180.
I stand by my debit card practices. They are safe, convenient, and cheaper for the vendors I truly care about.