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Shoppers May Have to Weigh Surcharge in Choosing Cash vs. Credit Card
By Terry Savage
How
much is it worth to you to pay for your purchases using a credit
card? That’s a question that shoppers for everything from groceries
to clothing to airline tickets may soon have to start asking themselves.
As part of the settlement in an epic battle between retailers and
card issuers, merchants are now allowed to charge additional fees
to consumers who pay with a credit card.
Of course, you could always pay in cash (or check or debit) — and avoid
fees for credit card usage. And you could avoid merchants who choose to tack
on these fees, which could be as much as 3 percent of the purchase price.
It’s a tough question for consumers — especially if the idea of charging
an extra fee for the use of a credit card catches on. And it will be a tough
call for merchants, who risk alienating their customers if they add the fee.
In the past few weeks, seven states, including Illinois, have introduced legislation
to ban the use of surcharges on credit purchases in the name of consumer protection.
You might be wondering how this idea of credit-card surcharges came up in the
first place — an idea that incents us to go back to a cash or paper check-writing
economy, or to use debit cards in place of credit.
The opportunity for credit-card surcharges came about as part of the settlement
of a $7.25 billion class-action suit charging that card issuers had a monopoly
that included setting fees. That lawsuit was settled in July 2012, after a seven-year
negotiation. Part of the deal required banks to relax their strict rules requiring
merchants to absorb the cost of processing payments.
Consumers would not have been aware of how the credit industry was splitting
or absorbing the fees and costs of extending credit — until this recent
move by retailers to charge extra for use of a credit card — a charge made
possible by the lawsuit settlement.
And that brings us to the argument over whether adding a fee for credit-card
usage is “fair” to consumers, and whether it helps or hurts the economy.
As you can imagine, there are arguments on both sides.
Will surcharges help consumers avoid credit-card debt, making them think twice
before they say, “Charge it”?
Or will those surcharges only add to the debt burden being faced by consumers
who are forced to use credit for essentials because they don’t have money
in the bank to use a debit card?
And will encouraging the use of checks or cash make our economy less efficient
and more costly, merely adding more fees and pushing prices higher?
Will it make banks less profitable — causing them to raise fees elsewhere?
This “small” fee of up to 3 percent has huge implications in our
multitrillion-dollar consumer economy.
One thing to consider in this debate: The price of credit is already being paid
by everyone. The merchant’s overhead cost of processing credit is already
part of the price of everything you buy, whether you use credit or not. The cost
is built into the prices they set.
So unless they first lower all their prices across the board for everyone, and
only then charge a checkout fee to a customer paying with a credit card, this
plan to add a checkout fee seems to be “double dipping.” Credit customers
would be paying twice for the cost of credit.
Perhaps merchants should offer lower prices for those who do not use credit — as
opposed to a surcharge for those who do. We might go back to those days of the “underground
economy,” in which the common phrase was: “I’ll do it for less
if you pay cash.” That tended to apply to services such as electrical or
plumbing, where cash was king. But some people still figure they can walk into
a family owned business and expect to get a discount if they offer cash. Charging
for credit inevitably causes a two-tier pricing system.
You will still have choices when you shop. If you don’t want to pay extra
for credit-card purchases, you can use your debit card. That presumes you have
cash in your account to immediately pay for your purchase and are using your
card for convenience and for the protection that use of a debit-card offers against
fraud.
Or you could go back to writing checks. Remember the delays in the checkout line
at supermarkets and drugstores as you waited behind a customer seeking approval
of a check? How inefficient. And it unfairly discriminates against those who
need to use credit to pay for the unexpected car repair, or broken refrigerator,
or doctor bill.
The real question is whether anyone believes that charging a surcharge for credit
will contribute to lower prices for those who use cash or debit, thus helping
consumers in these tough times. If you believe that will happen, the Easter bunny
is coming soon!
This page and its contents ©2013
Metropolitan News Company, Inc.
