Merchants Back Away From Checkout Fee Surcharge As More States Seek Ban

What's Next In Payments®
5:07 PM EDT February 4th, 2013

One week after the “checkout fee” surcharge became legal in 40 states, two patterns have emerged: states are intent on fighting the measure, and merchants are intent on distancing themselves from the fee.

Effective January 28, merchants in 40 states gained the ability to charge consumers with a “checkout fee” surcharge equal to the amount it takes that merchant to process a credit card payment. Merchants gained this right as part of the Visa-MasterCard $7.2 billion Swipe Fee Settlement, which was given preliminary approval last November.

While many cautioned that merchants would seek to take advantage of the law to gain potential revenue, many retailers have gone out of their way to disassociate their brands with the extra charge.

“National and regional chains don’t want to surcharge and probably couldn’t,” said Mallory Duncan, Senior Vice President and General Counsel for the National Retail Federation. “Small retailers are too busy running their stores… and could not afford the expense. The bottom line is that very few retailers would be able to surcharge, and the vast majority don’t want to surcharge even if they could.”

Duncan’s quotes came as part of a statement issued by the NRF, citing merchants as “unlikely” to enact the surcharge for a variety of reasons.

“The lawsuit sought to bring down swipe fees and the prices paid by consumers, not to increase prices. The card companies’ new surcharging proposal runs 180 degrees counter to the intent of the lawsuit,” Duncan stated.

Other major merchants, such as Macy’s, Walmart, Sears and Target have all publically decried the checkout fee, and have promised that their companies will not enact the surcharge where applicable.

“The proposed modification to the no-surcharging rule for Visa and MasterCard provides no benefit to customers or merchants such as Walmart,” said Walmart Spokesman Randy Hargrove.

“Oh, give me a break. The merchants have been clamoring for the right to impose surcharges on consumers who pay with cards for more than a decade,” said David Evans, Founder of Market Platform Dynamics, and a long-time consultant on the interchange fee cases around the world. “That’s why they got it in the settlement — because they wanted it. Now that people are focused on the possibility they might do it they are saying they don’t want it.”  Evans went on to observe that merchants in other countries have lobbied for the right to surcharge and when they get it most don’t — but quite a few use that right to jack up the price to consumers who can’t easily pay with cash.

Perhaps the only entities who’ve taken an even harder and faster stance against the surcharge than have merchants themselves are government officials. Already illegal in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, eight more states have taken steps to make the fees illegal.

Hawaii, Illinois, Mississippi, New Jersey and Rhode Island are reportedly considering bills that would ban the surcharges, while Pennsylvania and West Virginia are already drafting legislation to do so, according to Mobile Payments Today.

“Once again, New Jersey residents are hit with fees and charges at the check-out line that could have a real impact on families’ and residents’ budgets, said Sen. Jim Whelan (D – N.J.) “Nearly a quarter of all purchases made in the U.S. are made using a credit card and with the additional imposition of up to four percent in charges, this could negatively affect New Jersey’s growing consumer confidence.”

While the right to offer the checkout fee surcharge was considered a concession point in the Visa-MasterCard Swipe Fee deal, many opponents for the agreement cited its impracticality at the time. The fee is still new and merchants have plenty of time to change their minds about tacking the fee on to credit card charges, but initial results appear to be proving such doubters right.

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