Consumers should not get too excited about the $7 billion settlement between the big credit-card companies and retailers, because chances are that they will be forced to pick up the tab.
The card settlement that MasterCard, Visa and other large banks reached with retailers – which still requires a judge’s approval – will require the biggest card issuers to pony up $7.25 billion in penalties and payment fees to retailers who claimed that the fix was in on “swipe fees,” the charges applied to each credit-card transaction.
Those swipe fees – which can run anywhere from 1 percent to 5 percent of a transaction – were never competitive; they’re set by the card companies without any competition or incentive for keeping them low. That’s not really changing, as the settlement doesn’t actually force the card issuers to tell merchants how the levies are set.
The big change to come out from the settlement is that retailers will now be allowed to add surcharges to the costs of using your plastic in their shop. In an effort to make sure that nothing slowed the use of credit cards, Visa and MasterCard never have allowed retailers to get in on the fee action; conceding that retailers should be able to charge fees is not a big deal to the card giants because they recognize that the public is so addicted to using plastic that it’s not going to change behaviors now.
That’s why consumers should start thinking about how they might change behaviors.
The likelihood is that retailers will start charging fees on credit transactions – and possibly leaving debit-card deals alone – just about as soon as the floodgates officially open. They’ll do it in a way that feels like many gas stations, where there is one price for using cash and another for using credit; it doesn’t feel like a surcharge, but that is at the heart of the issue, retailers passing along a cost of doing business.
There’s a fine line to walk here, and public perception and acceptance – or discomfort – of the fees could go a long way to how the situation plays out.
Less than a year ago, public outcry over debit-card fees being raised and levied by Bank of America and others led to so much consumer backlash that the bankers stepped away from their plans.
That said, banks generate billions in fees from users of automated-teller machines who access their cash in ways that are convenient but costly, paying surcharges; logic dictates that if consumers can’t avoid those charges – which often can be done simply by staying inside their institution’s ATM network – they’re not going to change their shopping habits just because they get a little financial slap on their way out the store door.
Businesses don’t necessarily want a return to cash either; for a small business, doing a ton of cash transactions requires everything from regular trips to the bank just to be able to make correct change to armored-car services.
But if they can cover the swipe-fee costs by passing them on with slightly higher prices – and then offer a “deal” by allowing customers who pay cash to avoid the higher costs created by swipe fees – expect them to do it.
It’s still early in the process, and a lot has to play out before this change becomes reality; one significant issue involves payment services like PayPal, where many observers believe the settlement agreement basically forces retailers to either implement a surcharge or stop using the services.
As the changes created by the case go from murky to real, consumers should get an early jump on understanding that this situation is like almost all that revolve around their money.
“What we know right now is that no matter how this plays out, savvy consumers aren’t going to stand for paying fees and surcharges and they will figure out a better alternative,” said Greg McBride, senior financial analyst for BankRate.com. “And then there are people who are sloppy with their finances, who don’t worry about these things or don’t think they add up, and they will wind up paying for this big-time.”
The simple solution is sticking with cash, of course, but that doesn’t work for everyone or at all times.
So consumers should try to examine their fee behavior today, and see how they can reduce fees, while also thinking about how they would change behaviors if fee structures change.
Most consumers who rely on their bank cards for cash long ago recognized the importance of having a home bank that was convenient to where they live, work or shop, so that they can avoid the fees they would otherwise pay on ATM withdrawals, which frequently involve being charged both by the owner of the machine they use and their own institution for making a transaction at a foreign unit.
Examine how fees are piling up, and look at spending patterns to see how things might change depending on surcharges that could apply to credit and/or debit cards. Consumer experts routinely say that charges like these sneak up on consumers, thinking they are avoiding the problems but unaware of how rules have changed to make the charges tougher to avoid.
If your fee activity turns out to be higher than expected as you review it now, expect that it will get much worse if the settlement is approved and the surcharges start.
Then keep your eyes open and read the fine print – especially at the register and on the bottom of your receipts – so that you are aware when the fallout of this decision materializes.
It’s a big bill; the less you have to pay for it, the better.Chuck Jaffe is senior columnist for MarketWatch. He can be reached at email@example.com or at PO Box 70, Cohasset, MA 02025-0070.