--Consumer Action says consumers should be aware of changes to
surcharge rules
--Merchants gained the right to surcharge under settlement with
Visa and MasterCard
--Merchant trade groups say not many retailers will
surcharge
(Adds details about 10 states that ban surcharges.)
By Andrew R. Johnson
Credit cardholders must be on the watch for new checkout fees
that merchants will be able to impose starting in January under a
class-action settlement with Visa Inc. (V) and MasterCard Inc.
(MA), a consumer advocate and card-industry group warned.
The ability to tack on an extra fee to the receipts of consumers
who pay with credit cards was one of the tools merchants gained as
part of a deal reached in July intended to end years of litigation
against the card networks and banks that issue credit cards.
But merchant trade groups say they don't expect many retailers
will start charging new "checkout fees," noting it could alienate
customers and drive business to their competitors. Some groups also
oppose the settlement, arguing the deal places too many
requirements on retailers who decide to impose a surcharge and
forces them to forfeit their right to sue Visa and MasterCard in
the future. They also noted that 10 states, including New York,
California and Florida, have banned surcharges, so merchants there
wouldn't be able to impose them.
Nonetheless, San Francisco-based advocacy group Consumer Action
is urging consumers to remain vigilant for surcharging, outlining
in a new brochure the disclosure requirements merchants must meet
and options customers have to avoid them.
"The main thing we really want people to know is if they
encounter one of these, they can vote with their feet and walk
away," said Linda Sherry, director of national priorities for
Consumer Action. "They do have the choice to patronize merchants
who do not charge this."
Consumer Action developed a brochure with the Electronic
Payments Coalition, which represents card companies like Visa and
MasterCard and large banks on payments issues. The coalition has
gone head to head against merchant groups in the past, opposing a
federal rule pushed by merchants that lowered the fees retailers
pay to accept debit cards in 2011. It also has been pushing back
against merchant groups who have tried to derail the settlement's
court approval.
"These were huge concessions that the retailers insisted be
included in the settlement, so someone clearly wants it," Trish
Wexler, spokeswoman for the Electronic Payments Coalition,
said.
Target Corp. (TGT), which has blasted the settlement, said this
summer it has no interest in imposing a surcharge customers. A
spokeswoman for Rite Aid Corp. (RAD), a plaintiff that sued Visa
and MasterCard, said Friday the company has no plans to plans to
use a surcharge at this time.
Walgreen Co. (WAG) and Publix Super Markets Inc. (PUSH), which
are also involved in the litigation, did not respond to requests
for comment.
Kroger Co. (KR), another plaintiff, is "developing plans to
incentivize customers to use lower cost forms of payment," Keith
Dailey, a spokesman for the grocery-store chain, wrote in an email.
"That should result in lower costs for Kroger, which will benefit
both our customers and shareholders. We are exploring a variety of
ways to do this and have not made any final decisions."
Mr. Dailey did not provide further explanation of Kroger's
plans, but merchants already are allowed to offer discounts to
consumers who use cheaper forms of payment, such as cash and checks
or debit cards instead of credit cards. Debit cards carry lower
transaction fees than credit cards.
The settlement would put to bed litigation merchants filed
against Visa, MasterCard and large banks including Bank of America
Corp. (BAC) and J.P. Morgan Chase & Co. (JPM) in 2005.
Retailers argued the card networks and banks conspired to set
credit-card transaction fees, or interchange fees, at arbitrarily
high levels and imposed anticompetitive rules on retailers who
accept their cards, including the prohibition on surcharges.
Visa, MasterCard and the banks agreed to pay $6.05 billion to a
class of up to eight million merchants and temporarily reduce
interchange fees by an amount equal to $1.2 billion.
U.S. District Court Judge John Gleeson granted preliminary
approval to the deal in November. The rule changes were set to take
effect 60 days after that, thus allowing merchants to being using
surcharges on Jan. 27, according to Visa. The deal still awaits
final approval, a ruling on which is expected next year.
Since the settlement was reached, merchant trade groups have
argued it makes it too hard for them to do so and could drive
customers away.
"Retailers have no interest in surcharging customers, nor do
they believe that the proposed settlement provides any means to
compel competition among Visa and MasterCard to control the growing
cost of interchange," Brian Dodge, senior vice president of
communications and state affairs for the Retail Industry Leaders
Association, wrote in an email.
In the past, merchants have argued the ability to surcharge
would exert pressure on Visa and MasterCard to make more permanent
cuts to transaction fees. The networks rely on transaction volume
for revenue, and the threat of losing transaction volume if
consumers stopped using their cards because of surcharges may
prompt the card networks to lower costs.
But critics say surcharging, as allowed under the settlement,
won't be an effective tool to drive down costs.
Under the settlement, merchants must post signs at their store
entrances and cash registers notifying consumers that they impose a
surcharge on credit-card transactions (debit-card surcharges are
not allowed). They must also include the amount of the surcharge on
customers' receipts, and generally aren't allowed to charge more
than what they pay to accept cards, which typically ranges from 1%
to 3% of the transaction, though the settlement caps surcharges at
4%.
They also aren't allowed to surcharge Visa and MasterCard credit
cards more than those of other card brands. American Express Co.
(AXP) and Discover Financial Services (DFS), which are not part of
litigation, have rules that allow merchants to surcharge so long as
they do it equally to other card brands, according to the
companies.
Merchants must give 30 days notice of their plans to surcharge
to Visa and MasterCard as well as their merchant acquirers, which
are the banks that handle retailers' card transactions.
"We are absolutely preparing for the eventuality that some
merchants may elect to surcharge," said Bill Sheedy, group
executive for the Americas for Visa. Mr. Sheedy said the company is
working to ensure merchants have the tools needed to surcharge, and
that such fees are "aligned with the settlement agreement" and
"transparent to the consumer."
Visa is changing back-end systems to allow surcharges to be
included in transaction records carried over its processing
network, developing signs that merchants who decide to surcharge
can download and post in their stores and launching a website where
merchants must register if they plan to surcharge, Mr. Sheedy said.
The website, which will not be searchable by the public, should be
running in the coming weeks.
MasterCard is also developing a website for its merchants to
register if they want to surcharge, a spokesman said.
The disclosure requirements are meant to protect consumers from
potential price gouging that could occur and ensure consumers are
aware the extra fees, said Noah Hanft, general counsel for
MasterCard.
"We feel that there may be some instances of checkout fees, but
it's not going to be widespread," Mr. Hanft said.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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