You asked: Can a business charge a fee for credit card transactions?

Talk about it

Editor’s note: The following is an Echo Press feature called, “You asked.” Readers are invited to send the newspaper a simple question and we’ll try to get to the bottom of it. Send questions to aedenloff@echopress.com.

Eileen, an Echo Press reader, asked if a new law has been passed allowing businesses to charge a fee for credit card transactions.

The short answer is yes. The long answer is a bit more complicated.

Merchants are required to pay an interchange fee to credit card companies for the convenience of using their currency. Forty states have now opted to pass that cost along to consumers – Minnesota included.

The interchange fee is often referred to as a “swipe fee” because it accumulates every time a person swipes their credit card for payment. Over the years, Visa and MasterCard have collected billions of dollars from businesses. A litany of businesses filed suit against the card companies, believing they have paid too much.

After seven years of litigation, in July 2012, defendants Visa, MasterCard and a group of large financial firms forfeited $7.25 billion to settle an antitrust case pursued by retailers. The largest private damage recovery in United States antitrust history, according to court documents. As part of that forfeiture, card issuers reduced their interchange rates and businesses were given authority to implement a surcharge, in the form of a “checkout fee.”

As of Sunday, January 27, fees between 1.5 and 4 percent of a purchase price have been tacked onto credit card transactions. The fee does not apply to debit purchases.

If a business opts to impose the checkout fee, a sign must be posted. This notification applies to online businesses as well. The fee is voluntary, but if businesses don’t implement a surcharge, they must pay the tax themselves.

A merchant’s sign must include: the amount of any surcharge that the merchant imposes, a statement that the surcharge is being imposed by the merchant and a statement that the surcharge the merchant imposes is not greater than the applicable merchant discount rate for transactions. The Congressional $10 minimum for credit card transactions enacted through the Durbin Amendment still stands.

Some people are concerned that retailers may charge the fee twice since payment processing costs are generally already included in a product’s final price. The Board of Governors of the Federal Reserve System allows for a cost of acceptance, which is a capped amount applied to credit and debit transactions. Anything above that is at the business’s discretion.

National retailers, including Walmart, Target, Macy’s, JCPenney and McDonald’s, have stated that they will not be charging a checkout fee.

As outlined in the case settlement, $6.05 billion will be paid back to class plaintiffs to compensate for past damages. A $1.2 billion fund will be paid to merchant class members that do not opt out and that accept Visa and MasterCard credit card transactions during July 2012 to January 2013. MasterCard strongly disagreed with the claim but continued with the settlement to avoid years of litigation.

The memorandum supporting the class plaintiffs, represented by national firm Robbins Geller Rudman and Dowd, said the reforms proposed in the case would restructure the payment card industry, making it more competitive, and introduce transparency at the point of sale, which would result in merchants giving customers the option to pay with a less expensive payment form.

The National Retail Federation said that swipe fees account for the third highest expense for retailers and that the new tax threatens a business’s ability to keep prices low for consumers.

Allegations of attempts to fix credit card processing fees had been made against Visa and MasterCard when they were controlled by the same banks prior to 2005. The two have since split, resulting in a more competitive payment card marketplace.

States that are not permitting the additional fee to consumers include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

DO I HAVE A DEBIT CARD?

As identified in the court document, a debit card is:

Any card, plate, or other payment code or device, even where no physical card is issued and the code or device is used for only one transaction -- including, without limitation, a plastic card, a mobile telephone, a fob, or any other current or future device by which a person, business, or other entity can pay for goods or services -- that is issued or approved for use through a payment network to debit an asset account, or that otherwise is not a credit card, regardless of whether authorization is based on signature, personal identification number (PIN), or other means, and regardless of whether or not the issuer holds the account (such as decoupled debit), including cards commonly known as signature or offline debit cards, PIN or online debit cards, gift cards, or other prepaid cards.

Crystal Dey

Crystal Dey is a staff reporter for the Echo Press. Originally from Minnesota’s Iron Range, Dey worked for newspapers in North Dakota, Florida and Connecticut before returning to her home state to join the Echo Press in October 2011. Dey studied Mass Communications at Minnesota State University Moorhead with an emphasis in Online Journalism. Follow Staff Reporter Crystal Dey on Twitter at @CrystalDey_Echo.

Tags: local news, swipe fee, news, updates, money