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The surcharging provisions of the credit card interchange settlement announced last July will take effect on Sunday, but observers expect few merchants will take advantage of their new-found freedom to add a surcharge to Visa and MasterCard credit card sales.
“I know of nobody” who plans to surcharge, says Mitch Goldstone, president and chief executive of Irvine, Calif.-based ScanMyPhotos.com and a plaintiff in the massive litigation that led to the settlement. “Everything I’m seeing and hearing is that surcharging will take effect and it’s not going to have much effect on consumers.”
Adds a spokesperson for the Washington, D.C.-based National Retail Federation: “None. Zero. Nada. Not going to happen.”
The spokesperson goes on to say in an e-mail to Digital Transactions News that the surcharging provision comes with many restrictions. Ten states, including such big ones as California, New York, Florida, and Texas, prohibit the practice. Since Visa Inc and MasterCard Inc. require that merchants handle credit card transactions in the same manner wherever they are, the 10-state ban effectively applies to any state where national and regional chains have stores, he says. Plus, they can’t surcharge if they also accept American Express Co. cards since AmEx bans surcharging. That means small card-accepting business are likely to be the main users of surcharges.
“The bottom line is that very few retailers would be able to surcharge under the settlement, and that the vast majority don’t want to surcharge even if they could,” the NRF spokesperson says.
A spokesperson for NACS, the national trade association of convenience stores and gasoline retailers, says some gas stations offer discounts for cash, but surcharges for credit card payments are unlikely to take hold among the membership.
“Most retailers are wary of surcharging, for a variety of reasons, chiefly competition,” the spokesperson says by e-mail. “This is especially true of gas stations, where price competition is fierce … NACS is not aware of any retailer that is instituting a surcharge program.”
Goldstone, however, says the mere threat of surcharging could help keep interchange rates in check. “I don’t think surcharging is necessary, but it is an important tool to have in our arsenal,” he says.
The massive settlement is proving to be one of the most controversial developments in card payments in a decade. When announced last July 13 by lawyers for both sides, it seemingly ended seven years of litigation by merchants that challenged the interchange practices of Visa, MasterCard and some banks as anticompetitive. The defendants will pay class merchants about $6 billion in damages, plus $550 million to a handful of large merchant plaintiffs that have now dropped their claims. Visa and MasterCard are to provide another $1.2 billion in temporarily reduced interchange rates and ease up on certain rules, including surcharges for credit card transactions.
But the networks will get releases from future court challenges by merchants to interchange and network rules. That provision caused intense dissent in the merchant community when it became known. Critics said the damages and temporary interchange relief are a small price for the networks to pay for such sweeping immunity. Ten of 19 original plaintiffs fired their lawyer and dropped out of the case, the NRF spokesperson says.
The judge overseeing the case, John Gleeson of U.S. District Court in Brooklyn, N.Y., gave preliminary approval to the settlement on Nov. 9. Gleeson, however, acknowledged the disagreements and noted that final approval has a higher threshold. Observers don’t expect Gleeson to issue a final ruling until later this year.
