One of my pet peeves is when gas stations advertise a cash-only price on a billboard with the “cash price” stipulation in such small letters underneath that I don’t know it until I have parked to take advantage of the great price. I have learned my lesson one too many times on this one, and so now if I see that there is any lettering underneath a price on a gasoline billboard I assume that that price is not for me (I charge everything on my credit card, pay it off diligently each month during the grace period, and reap the gas rewards).

Well, this scenario could start to play itself out much more often in a variety of stores nationwide. A class action lawsuit brought by around 7 million merchants nationwide that accept Visa, Mastercard, and debit cards claimed that these large credit card companies and the banks that issue their cards price fixed credit card swipe fees. The proposed settlement totals $7.25 billion. To put this in perspective, credit card companies earn approximately $50 billion per year from swipe fees. Visa’s share of the bill is $4.4 billion, and Mastercard’s is $790 million.

What are Swipe Fees?

The case began in 2005 when retailers claimed that Visa and Mastercard had violated antitrust laws by fixing swipe fees. Swipe fees are charges to cover processing credit and debit payments. These fees are set by the card companies and deducted from the transaction by the banks that issue the cards, which means that the cost is passed onto merchants. Merchants argue that credit cards and credit card issuers such as JPMorgan Chase, Wells Fargo, Bank of America, etc. engaged in collusive practices by setting credit card swipe fees at exorbitant levels and limiting competition. Merchants feel that their practices denied them the ability to save money on transaction fees.

How this Settlement Impacts Retailers

The card companies are going to reduce swipe fees by the equivalent of 10 basis points for eight months for a total value at about $1.2 billion to retailers. For stores who wish to sue individually, there is $525 million set aside in this settlement. Retailers can also negotiate directly with Visa and MasterCard over the credit card transaction fees they must pay (though they must do so collectively). Finally, there will be a payout to the retailers who make up the class action lawsuit (and who accept the settlement).

How will the Settlement Impact You?

This settlement allows retailers to charge a higher fee for consumers who use credit-based payments. This is to create an incentive for consumers to use lower-cost forms of payment instead of swiping their credit cards as much, and can be imposed as early as December of this year (2012). Because merchants were not allowed to charge customers extra for costlier payment forms previously, they often built that cost into the retail price. In other words, hopefully prices on goods will be lowered because of this settlement. On top of imposing this fee on consumers, retailers can also give a discount to people paying with cash, debit cards or low-frills credit cards that cost retailers less in transaction fees than traditional cards.

What remains to be seen is how many merchants will decrease their product costs based on this settlement. This would certainly help consumers, especially those who choose to pay with cash. In fact, one store has already done this. Scanmyphotos.com has dropped their prices by 2% to pass on the savings to their consumers. Kroger grocery store is considering doing so as well. As far as raising their cost for people who choose credit card transactions, most retailers appear to be none too eager to do so in a shaky economy. Who knows what will happen several years from now.

Will you switch to cash if you have to pay a higher price to swipe a credit card?

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Comments to Will Cash Discounts Take Off After the Credit Card Settlement?

  1. Glad I’m not the only one that noticed this. Will be interesting to see how this plays out. Thanks for the update!

    Linda

  2. Is this the beginning of the end for rewards credit cards or will they need to find a way to retain customers?

    Martha

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