Retailers, Not Consumers, Swipe Victory in Credit Card Fee Settlement

Retailers win on swipe fees. Those paying with plastic might feel the pinch.

Add seven swans, six geese and five golden rings to the list of Christmas gifts that cost more than they did a year ago.

Add seven swans, six geese and five golden rings to the list of Christmas gifts that cost more than they did a year ago.


Shoppers who pay with plastic could have an extra fee tacked onto their totals thanks to a settlement reached between retailers and Visa and MasterCard late last week.

Visa and MasterCard agreed to pay dozens of retailers more than $7 billion to settle a seven-year battle between merchants and credit card companies over processing fees for credit cards. The settlement temporarily lowers fees merchants pay Visa and MasterCard to accept credit cards, and allows retailers to add a surcharge to credit card transactions.

In order to accept credit cards, retailers pay a so-called swipe fee—usually 1.5 to 3 percent of a transaction—every time they accept a credit card for payment, which increases the cost of doing business. According to the Wall Street Journal, after labor costs, swipe fees are one of the biggest costs of running a retail business.

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Here's a closer look at how the credit card settlement affects you:

Consumers in general. Before the settlement, retailers weren't allowed to add an additional fee to cover the cost of processing credit cards. That means consumers—whether they paid with credit, debit, or cash—had that swipe fee integrated into the goods and services they purchased.

Retailers argue that with the ability to apply a surcharge to just credit card users now, they can charge only those who are using the more expensive payment method instead of dinging all consumers with an extra 2 to 3 percent fee.

"This really benefits the people who are using debit or cash," says Anisha Sekar, VP of credit and debit products at personal finance website NerdWallet. But the benefit won't be as visible as the hit to credit card users, Sekar adds, who could potentially pay more just because they're using a credit card.

But others aren't so sure consumers are getting any kind of benefit. For precedent, critics point to retailers' victory with the Dodd Frank Act, which cut debit card swipe fees in half two years ago.

"This isn't going to be a benefit to consumers. This is going to be a benefit to retailers," says Greg McBride, senior financial analyst at "[It was] two years ago when debit card interchange fees got cut in half—I don't know about you, but I haven't seen any lower prices since then."

"All this is going to do is transfer money from the pockets of the banks into the pockets of the retailers and it's going to come at the expense of consumers," McBride adds.

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On the bright side, the settlement is packed with tons of consumer protections when it comes to the surcharge fees. For starters, merchants can't just charge whatever they want to accept credit cards. Surcharges on shoppers are limited to what merchants pay card companies—typically 1.5 to 3 percent—to accept credit cards.

Merchants also can't hide or lie about the surcharge and must post and list the fees at their store entry, the point of sale, and on the receipt.

"Retailers can't gouge their customers and they can't hide these fees," says Trish Wexler, spokeswoman for the Electronic Payments Coalition. "They have to say, 'This is a check-out fee or a surcharge that we are levying,' so that as a customer you're not surprised at the register."

Credit card users. It might not happen overnight and it depends on what competitors do, but retailers could legally charge credit card users more for their purchase (by adding a surcharge) than non-credit card users. But while retailers argue their approach is fairer to debit card and cash customers, they could see some backlash from credit-card carrying customers.

"It really promotes the feeling of, 'This is not fair. This is unjust,'" Sekar says.

McBride agrees and is skeptical about any broad-based adoption of credit card surcharges at this point.

"There are a lot of sales that take place just because the customer can pay for it with plastic," McBride says. "Merchants are going to have to be very measured about applying surcharges because they may unintentionally push a lot of sales to their competitors who accept credit cards."