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Retailers to benefit from credit card fee settlement, not consumers

As the result of a $7 billion settlement between retailers, banks and card processors, American consumers will be charged a new fee at the register when they pay with plastic.

Visa and MasterCard agreed to the settlement, the largest of its kind in U.S. history, after a seven year battle with retailers over credit card processing fees. Retailers filed dozens of lawsuits beginning in 2005, alleging that banks and card processing companies colluded to fix interchange or “swipe” fees — the amount a bank can charge a retailer to process a debit or credit transaction — as well as prohibited merchants from steering consumers to cheaper forms of payment.

The settlement temporarily reduces interchange fees for retailers and allows retailers to charge a “checkout fee,” a surcharge paid by consumers when they use plastic to complete a transaction, U.S. News & World Report reports.

Retailers were previously prohibited from charging an additional fee to cover card processing costs and, instead, passed the costs on to consumers regardless of the payment method. Merchants maintain that, now, with the ability to charge a checkout fee, they will be able to charge only those consumers who use the more expensive forms of payment.

Greg McBride, a senior financial analyst at Bankrate.com, however, said that the settlement will not be beneficial to consumers. When retailers made the case to Congress for reduced interchange fees, they promised that the savings would be passed to consumers in the form of lower prices.

“This isn’t going to be a benefit to consumers,” McBride said, according to U.S. News & World Report. “This is going to be a benefit to retailers. [It was] two years ago when debit card interchange fees got cut in half—I don’t know about you, but I haven’t seen any lower prices since then. All this is going to do is transfer money from the pockets of the banks into the pockets of the retailers, and it’s going to come at the expense of consumers.”

McBride said that the surcharges may drive away business.

“There are a lot of sales that take place just because the customer can pay for it with plastic,” McBride said, according to U.S. News & World Report. “Merchants are going to have to be very measured about applying surcharges because they may unintentionally push a lot of sales to their competitors who accept credit cards.”

One Response to Retailers to benefit from credit card fee settlement, not consumers

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