July 19, 2012
More Credit Card Charges on the Horizon
The ability to pay with a credit card for seemingly every transaction, without a surcharge, has been established as close to a right in America, but that may soon change. In a move that they say would defray the transaction cost attached to processing credit card transactions, merchants are pushing for the authority to charge customers an extra fee to use credit cards at their establishments.
Among other industry leaders, both Visa (V) and MasterCard (MA) have rules preventing business from chargingcustomer transaction fees. All retailers must abide by these guidelines if they are to be permitted to accept these companies’ credit cards. These regulations exist despite credit card distributors charging businesses each time they execute a transaction with their cards, known as an interchange fee.
A number of large retailers, among them the grocers Kroger Co. (KR) and Safeway Inc. (SWY), have filed a lawsuit in U.S. District Court in Brooklyn which contends that Visa and MasterCard’s practice amounts to collusion. The Dodd-Frank Act of 2010 significantly reduced the interchange fee attached to debit cards but left that of credit cards untouched.
According to analysts, the most likely outcome of the lawsuit will involve a deduction in the interchange fee that merchants are required to pay to credit card companies. This will likely be granted in exchange for an elimination of the provision in contracts that ban customer surcharge fees. While competitors like American Express (AXP) and Discover (DFS) do not currently prevent surcharge fees for their transactions, they are only permitted at retailers that do not currently accept Visa and MasterCard. Despite the changes that are likely to be put into place in the near future, the outcome of this civil lawsuit will not change the laws preventing credit card surcharges in eight states, among them New York and California.
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