Tuesday, January 29, 2013

Visa and Master Card: To charge or not to charge

As part of a settlement stemming from a class-action lawsuit, Visa and Mastercard have agreed to allow retailers charge their customers transaction fees. The lawsuit arose after several merchants went to court to challenge credit card swipe fees that were costing them $30 billion a year.

In the past, Visa and Mastercard prohibited businesses from charging these fees. Under the settlement, they can now request up to four percent. Cards offering rewards or additional promotions can charge higher fees.

Under the Dodd-Frank Consumer Protection Act, debit card holders are exempt from  fees.

Large retailers questioned about the settlement assured the public they have no intention to add additional charges. Ten states ban credit card surcharges. Consumers living in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas have been spared for the time being. Whether or not that will change remains to be seen.

But card holders living outside of these states are protected somewhat as well. Visa and Mastercard have a policy that makes retailers apply credit card handling across the board. A chain store located in any of these exempt states can not add a surcharge fee on transactions in non-exempt states.

Here's where it gets a little complicated though. Under the settlement, retailers can now add these fees to any credit card they accept. But if those credit cards prohibit fees, such as American Express, then retailers can't charge fees on any cards.

Sounds like a big  mess to me. Of course, businesses can help offset the swipe fees they're charged by passing on those costs to consumers, but all this "if" "but" and "perhaps" makes the settlement - I don't know, useless?

The court is still deciding the issue. And many industry know-it-alls are diligently monitoring the settlement, which means they will be watching out for consumers.

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