By Monica Harvey
INDIANAPOLIS – Consumers may be surprised to find that retailers now can pass along their credit card processing fees – although it seems few in Indiana may be inclined to do so.
A proposed national settlement between financial companies and retailers means the latter are no longer required to absorb the fees they pay every time customers swipe their Visa and MasterCard credit cards.
But that doesn’t mean restaurant, stores and other businesses think it’s a good idea to pass that fee along to customers.
“In this very competitive retail market place, the economy does not allow for retailers to do that,” said Grant Monahan, president of Indiana Retail Council. “They’re not going to add additional costs on their customers simply because the customer uses a credit card.”
Credit card companies and banks charge retailers a swipe fee that typically ranges from 1.5 to 4 percent of a customer’s transaction and his highest for those cards that offer rewards and other perks. The fee doesn’t apply to debit cards. In the past, banks have generally banned retailers from passing on the fee.
But those banks and retailers have been engaged in a federal anti-trust lawsuit over Visa and MasterCard credit cards since July of 2012. The suit “was brought by retailers in an attempt to lower those fees and then be able to bring prices down for customers” said Craig Shearman, vice president for government affairs public relations at the National Retail Federation in Washington, D.C.
For example, a retailer might sell a $96 item for $100 to essentially recoup the fee paid for credit card transactions, Shearman said. “If it wasn’t for these fees the retailer could have sold you those products for $96,” he said.
A proposed settlement lets retailers start charging fees for Visa and MasterCard transaction now – even as the court case remains open – but the process is complicated.
Consider that 10 states representing 40 percent of all U.S. credit card transactions – California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas – prohibit surcharges by law. And Visa and MasterCard require retailers to use the same card policies for all stores, according to the retail federation. That means national and regional chains with stores in the state that ban fees might not be able to charge them anywhere.
Also, the settlement requires merchants that pass Visa or MasterCard fees on to customers do so as well for American Express, but that firm bans such fees, the retail federation said.
Shearman said that recent increases in the federal payroll tax and a boost in gas prices means consumers have become more cautious. That could make passing along credit card fees more risky for retailers.
Christian Maslowski, executive director of The Greater Greenwood Chamber of Commerce, said customers would likely view the fees negatively, even if they came in place of higher prices.
“I think that businesses have already or should have already built credit card processing fees into their cost structuring or cost modeling,” said Maslowski. “It’s a cost of doing business, it’s been a way of life and a factor of doing business for decades.”
That’s what Pat Sullivan, owner of Sullivan Hardware in Indianapolis, has done.
“The credit card fees are a real issue for small businesses. It’s now our third largest expense,” Sullivan said. “Our largest expense is payroll, then rent and then credit card fees.”
Sullivan said 76 percent of the transactions at his store are with credit cards – a dramatic increase. Twenty years ago, the transactions were split into thirds. A third of the patrons would pay with cash, a third would write a check and a third would swipe a credit card.
“I don’t foresee at this point very many retailers getting away with being able to charge,” said Sullivan.
Tiffany Buchanan, manager of the Jefferson Street Pub in Franklin, said that during Franklin College homecoming weekend, the pub had a cash-only tab outside its establishment. The bar only sold two beers on the cash tab because customers were using credit cards, she said.
Still, she said it doesn’t make sense to pass the fees along to customers.
“To stick them with that charge, I think that would hurt businesses more than it would improve it,” Buchanan said.
But some retailers have opted to charge a fee. Mrs. Curl, an ice cream parlor located in Greenwood, had been until recently a cash-only shop. But it posted a Facebook update this spring announcing it would start accepting credit cards – although with a 3 percent fee tacked on. Several customers commented about their excitement for the change; others said they would stick with cash.
“Many companies hide extra charges in their prices,” Mrs. Curl said on the Facebook page. “We felt that this was a good balance so that our customers may choose to use cash and enjoy low prices with no fees, or pay a small fee for the convenience of a credit card.”
The store promised to work out any kinks with the fees.
“Small businesses – I’m talking about boutiques, mom and pop shops – they in the last 15 to 20 years have been the victims of Internet retail sales, big boxes and national chains coming into the local markets and they have struggled to keep up,” said Maslowski.
So far, big-box retailers appear to have shunned the fees as well. Walmart and Target have posted statements on their websites to inform customers that they will not be surcharging their customers.
The proposed national settlement is not yet completed. A September hearing is scheduled to determine whether the settlement goes forward.
Monica Harvey is a reporter for TheStatehouseFile.com, a news website powered by Franklin College journalism students.