If you've started taking a closer look at your budget for the New Year and are trying to scale back some of your extra expenses, don't overlook your credit card statements for extra fees in the near future. The consumer advocacy group Consumer Action advises consumers to be on the lookout for "checkout fees" that some retailers may be tacking on to credit card transactions starting January 27. While this practice is banned in 10 states, consumers are encouraged to be on alert for these fees that would legally be passed from merchant to consumer. Here's what you need to know:
How credit card swipe fees work. Last summer, a settlement following a lawsuit that was filed in 2005 against MasterCard, Visa, and some financial institutions made it possible for merchants to impose a "checkout" fee that would amount to about 2 to 3 percent of purchases charged to a credit card. This has been an ongoing battle involving banks and major credit card companies including MasterCard and Visa, and on January 27, merchants in the United States and its territories will have the option to add a surcharge to either all credit card transactions they process or to certain types of credit card transactions.
From a consumer's perspective, now may be a good time to consider how much credit and debit payment systems are benefiting them.
Retailers have long been complaining about swipe fees where credit card processors charge a fee to the retailer every time a customer uses a credit card to pay for their purchase. After the settlement and new agreement, some retailers would be permitted to impose a surcharge for credit card purchases.
Before the class action settlement, Visa and MasterCard prohibited retailers from adding a surcharge to consumer credit card purchases. Now, retailers have the option of charging a checkout fee. In the event of a return, the prorated surcharge could be refunded as well.
Who will charge checkout fees? Ultimately it is up to each retailer to determine what the price of certain products and services are, and what types of payments they accept. Consumer Action reports that retailers are still required to limit their fees and the typical charges will range between 1.5 and 3 percent of the credit card purchase. Retailers are also required to disclose what the fees are on the customer receipt and post signs that they are imposing checkout fees on credit card purchases. Checkout fees vary from card to card, so retailers must also disclose the fact they are not imposing any charges that are higher than the costs they assume to accept different types of cards. Consumers shopping with these merchants should be aware there is an added charge to the transaction and can make their purchasing decisions accordingly.
Retailers are permitted to offer discounts to consumers who choose alternative methods of payment, such as paying with a card from a specific card network or paying with a non-rewards credit card. However, they must still disclose any discounts and other incentives they are offering.
How consumers can handle checkout fees. Several organizations and consumer advocacy groups have voiced their complaints about these upcoming changes, and organizations such as Consumer Action are providing resources for consumers to better understand these changes. Knowyourcard.org is one such website that outlines what people can expect in the oncoming weeks as the outcome of the settlement goes into effect.
Savvy consumers may consider paying only with cash for larger purchase and even finding ways to negotiate prices if they are able to pay with cash. For example, shopping with a merchant or retailer that has a low sales volume may give the consumer more room to negotiate, since the seller may be keen to lower the price if the consumer agrees to pay with cash or a debit card. Finding alternative methods of payment may be the best way to keep costs of that next purchase as low as possible.
Ten states have laws restricting any type of surcharge fees: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Any consumer who suspects a violation related to credit card surcharges should get in touch with the state Attorney General's office.
Learn how to avoid credit card fees and other useful consumer tips from Sabah Karimi at top personal finance blog WiseBread.com.