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Wednesday, February 6, 2013

Checkout fee facts debated

The controversy over the proposed settlement of the class-action lawsuit that pits retailers against the card brands continues unabated. The latest issue involves the allowance by Visa Inc. and MasterCard Worldwide of credit card surcharging when consumers use credit cards at the POS. The card brands' representative, the Electronic Payments Coalition, said retailers demanded that the surcharge (checkout fee) allowance be included as part of the settlement, while the retailers' representative, the National Retail Federation, said most merchants have no intention of imposing such surcharges.

On Jan. 27, 2013, the card companies enacted a rule change that allowed merchants to cover the costs of interchange fees by surcharging customers up to 4 percent on credit card transactions. The new surcharging rules were instituted as part of a $7.9 billion preliminary settlement agreement in the lawsuit that alleges the two card brands violated the Sherman Antitrust Act by unlawfully fixing interchange fees and rules.

The NRF said that few, if any, merchants would surcharge customers for using credit cards. "The ridiculous concept that merchants will start surcharging on any widespread basis is propaganda being spread by the card industry in an attempt to divert attention from their skyrocketing swipe fees," said NRF Senior Vice President and General Counsel Mallory Duncan.

Given the contentious nature of the lawsuit, the EPC's reaction might have been predicted. The EPC said Visa and MasterCard "agreed to retailer demands that they remove their longstanding 'no surcharge rule' which protected consumers from these fees. Without this rule, all retailers – regardless of size – are now free to impose these checkout fees in the 40 states where this practice is legal."

The NRF makes its case

The NRF noted that several obstacles prevent most merchants from imposing checkout fees, even if they wanted to. The NRF said Visa and MasterCard require that retailers have the same card acceptance policies in all its stores. So, if national or regional chain stores have locations in the 10 states where surcharging is prohibited by law – that include large states like California, New York and Texas – then it is "questionable" that the chains would be able to surcharge in the 40 other states, the association said.

Further, the NRF claimed the settlement forces merchants that surcharge for Visa or MasterCard credit card transactions to also surcharge for American Express Co. credit card transactions. "But American Express contracts bar merchants from surcharging that company's cards, meaning a merchant who accepts American Express would not be allowed to surcharge any cards at all," the NRF said.

Finally, the NRF maintains that Visa and MasterCard would require merchants to jump through several hoops in order to surcharge. Among other things, merchants would have to provide the card brands with "detailed" surcharging plans at least 30 days in advance of implementation, as well as post signage in stores and reprogram or replace cash register systems, according to the NRF. "Ironically, merchants might also have to pay swipe fees on the amount of the surcharge, further driving up fees collected by the card industry," the federation said.

The EPC responds

The EPC countered that NRF statements were false and misleading. The coalition said there are no existing Visa and/or MasterCard rules that prevent merchants from surcharging credit card transactions in states that do not prohibit surcharging, even when merchants have presences in states where surcharging is illegal.

The EPC also took issue with the NRF's contention that AmEx contracts bar surcharging, and that if merchants accept AmEx cards, it would preclude such merchants to not allow surcharging for Visa or MasterCard transactions.

"[T]he NRF’s statements are simply inaccurate," the EPC said. "The notion that American Express cannot enter contracts with merchants that prohibit or restrict surcharging of American Express transactions without effectively barring all surcharging of any Visa and/or MasterCard credit transactions is just plain wrong. The settlement agreement expressly allows merchants to enter into individual contracts with competing brands that prohibit or restrict surcharging for independent consideration."

The EPC also noted that the NRF's statement that merchants and their trade organizations did not want the ability to surcharge is not accurate. "Both merchants and trade organizations demanded the option of surcharging as part of the settlement agreement," the EPC said. "Previously, both Visa and MasterCard had longstanding rules that prohibited this practice, and reluctantly gave up this 'No Surcharge Rule' as a compromise in order to settle the lawsuit."

The EPC claimed that retailers have sought the ability to surcharge for years, in congressional testimony and letters to the California legislature in regard to lifting the surcharging ban in that state. end of article

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