Credit Card Fees Take Effect Sunday | Hacker News Reader

Credit Card Fees Take Effect Sunday

abcnews.go.com

41 pointspolskibus52 comments

This is a good thing. Currently the credit card companies can basically charge whatever fees they like because (1) the customers who choose a card don't see the merchant fees (2) most shops can't afford to not offer credit card payments.

By making the fees explicit to the customers ("you pay $1 extra for Visa/Mastercard / $2 extra for Amex / debit card is free") many customers will choose what's cheapest for them, forcing the credit card companies to compete in the area of merchant fees.

Credit cards and merchants should be able to have any arrangement that they want. A credit card that has no customer fees seems like a nice one to have. From this article, I assume this will not be possible.

As far as I understand the situation, in the past credit card surcharges were prohibited by law. So credit card companies and merchants will have more freedom in regards to their arrangements now. Credit card companies can still have a contract with a merchant that says that surcharges are forbidden (Amex does that according to the article), but otherwise there's no law anymore that prevents merchants from adding the surcharge.

The situation is the exact opposite. Previously, Visa and MasterCard prohibited merchants from charging more for credit than cash. It was a term required in all merchant account agreements with member banks of those networks. In the federal court settlement, Visa and MasterCard agreed to drop that clause from their contracts. There was no federal law prohibiting surcharges, and you can't eliminate laws through court settlements.

It's really not going to change much. Visa and MasterCard rates are already almost identical, and American Express will continue getting away with higher fees because of the higher net worth and spending power of its customer base.

I sell business services and most of my credit customers pay with Amex cards. They typically have higher credit approval barriers and annual fees, which their customers gladly pay for the raft of benefits the other issuers don't offer (extended warranties on all purchases, accidental damage coverage, rental insurance, travel insurance, roadside assistance, etc). Price is not the only dimension a card issuer can compete on.

Further, aside from Amex and Discover, the card issuers have no control over merchant fees. Chase can't issue a Visa card with lower merchant fees than Wells Fargo because neither bank sets the fees, Visa does.

And the obvious point: we're all paying these fees already, only they're spread indiscriminately across all customers, including those who pay cash. Saying a surcharge is 'penalising' me for my payment choice isn't much less silly than saying that a retailer's pricing structure 'penalises' me for preferring a luxury brand.

Right, so now we're all paying these fees and credit card users get to pay more - do you really think merchants will lower the cash price of their goods in exchange for the price hike on those paying by card?

Do you really think merchants who go through the effort of adding a credit card surcharge are going to pass up the opportunity to undercut the cash prices of the merchants down the street who skip adding one?

If there is adequate competition, the market will solve this.

If there is not, then merchants don't need an ostensible reason to screw you. They'll just do it.

There's cost involved with handling cash and checks not to mention the risk costs. Checks can bounce and have to be transported to a bank. Cash can be stolen and requires secure transportation to a bank. Cost of doing business should be factored in the price. We are moving towards a pricing structure where the advertised price is not the price you pay. Just look at your cell phone bill.

My info is limited to San Francisco, but here many smaller businesses prefer cash. The processing fees are too high to make accepting cards profitable. I see this policy mainly in smaller restaurants, coffee shops, bars, corner butcher shop, etc.

It depends on the amount of cash, I think.

We are moving towards a pricing structure where the advertised price is not the price you pay.

I'm from the UK, but my limited experience in the US says: that ship has well and truly sailed. I'm never quite able to get used to sales tax added at the checkout, and substantial and essentially-mandatory tipping across many services.

In Europe you basically always pay the advertised price in a shop or pub, and you can do so at a push in a bar/cafe/restaurant. (In France, I believe even a service charge is included in restaurant menu prices).

Is VAT (which, from the standpoint of a consumer purchasing something at retail, acts as a "very large sales tax") not added at checkout? Is it normally listed on the sticker prices throughout the store?

In most (all?) European countries VAT is included in the sticker prices. If the price on the sticker says €5 you also pay exactly €5 for it.

> Is it normally listed on the sticker prices throughout the store?

Unless it is a catalog with products strictly aimed at businesses, VAT is always included.

Yes. In the UK, sticker prices or advertisements aimed at consumers must include VAT where applicable. This is not so if the sticker/ad/whatever is aimed _solely_ at businesses (many of whom can claim back the VAT). Further info: http://www.hmrc.gov.uk/vat/sectors/consumers/basics.htm

Service charges are a different matter. Some restaurants advertise a mandatory service charge (e.g. 15%) on all bills, or for parties of x (e.g. 6) or more people. Although it may seem like increasing prices by the amount of the mandatory service charge would make life easier for everyone, services charges (even mandatory ones) are treated differently for tax purposes: if they are distributed to employees, they are not subject to VAT (revenue tax) or Corporation Tax (profits tax). They are, however, subject to payroll taxes (PAYE Income Tax and NIC): http://www.hmrc.gov.uk/paye/payroll/special-pay/tips.htm#1

In some European countries, not only is the VAT included price legally required to be the most prominently displayed price for any products advertised at consumers, but a consumer can legally demand to pay the most prominently displayed price even if it is VAT exclusive, and the seller will be on the hook for the VAT.

It acts as a very effective deterrent for companies to try to play games with VAT exclusive pricing.

Yes, and how did it ever come to be any other way anywhere? No value matters except what comes out my pocket - why tell me any other number?

Some locales refuse plastic below a certain threshold. I may prefer a POS surcharge to hunting around for an ATM and paying one there anyway.

Just curious, do you have to pay a fee to use any ATM?

Almost always, IME. The bank may even charge a service fee (to their own customers) on top of whatever fee the guest ATM charges. This probably comes out to no more than a few dollars, but it does make the option to pay +4% at POS more compelling for small purchases.

Actually if you pay with credit card you often don't have to pay the full fees, as with many credit cards a part of those fees is given back to you as reward points or cashback. So customers paying cash are essentially paying a higher percentage of those credit card fees, than customers paying with credit cards.

The legal minimum of 1.5% is fascinating, i wonder if it was put in by the credit card lobby.

Overall, this change should accelerate evolution in the payments space. Customers choose the payment type, so when merchants have to eat the fee and hide it from consumers there's little downward pressure on fees.

The minimum looks like an attempt to put a floor of 1.5% on the fees. Does anyone know what happens to any payment technology that wants to charge 0.5%? Does a merchant who passes along such fees have to eat it if its less than 1.5%? Or is it disallowed?

but the amount legally permissible will be between 1.5 percent and 4 percent of your purchase price

What's the reasoning behind a legal minimum? Why prevent a 1% fee?

Perhaps it's a range of maxima.

For me, credit cards are a tool that gives me a 1% discount on purchases, and protects me from fraud.

I've made over $1,000 in cash back rewards and was refunded $250 in charges from 2 different purchases that turned out to be fraudulent.

I always pay my balance down to $0 at least once a month.

Yeah, it's a great tool like that. And my banks IOS app lets me adjust my limit - so I put it down way low unless there is some big purchase about to happen. After 10ish years I got caught recently and had to pay interest, something like 19 cents. Used carefully and they can be a great way to get cheap banking.

Your credit card didn't protect you from fraud, it exposed you to it. It's only because you paid for something by giving away a number that gives anyone arbitrary access to your bank that you had money stolen, had to watch your statements to notice it, and had to file a chargeback to get the money back. Hackers on the web can never reach into your wallet and take $250 -- this is a drawback of your credit card, not "protection" offered to you.

Not true. When making a purchase using a credit card, you are not giving "arbitrary access to your bank", rather you are giving access to your line of credit. There's a difference. In the case of fraud, the credit card company still has to collect from you. You can always not pay and dispute the charge. This is why I prefer credit cards over debit cards. In the case of a fraudulent debit transaction, my money is gone, and the burden to recover it is on me. In the card of a fraudulent credit card transaction, the bank is out the money, and the burden is on them to recover. Furthermore, federal law gives credit card holders protection to dispute charges over $50.

Have you ever wondered where the money comes from to pay you the cash back? It's from charging higher merchant fees for rewards cards - so it's just a shell game really.

If merchants can charge a higher excess for rewards cards, that will help level the playing field.

It's a shame AmEx isn't included in the deal.

At lot of gas stations in my area offer gas cheaper if you pay cash. Usually it's around a 10 cent difference in price. Is this something that shouldn't be happening?

It was ok to offer a discount for cash, but it was not ok to have a surcharge for credit cards - and now it becomes ok to have such a surcharge.

Yes, these things are mathematically equivalent. And yet, that's what the law said.

If there was a programming language named Law it would be a freaky beast.

...and change output depending on the computer you ran it on and what year...

Well, there kind of is, no? It runs on judges.

My wife is a government lawyer, and I sometimes reflect that our jobs both ultimately involve writing words that do stuff.

Reminds me of Affordable Care Act's health insurance mandate and how the Supreme Court declared it constitutional.

> And yet, that's what the law said.

It wasn't the law[1] but rather a contractual restriction on surchages. This settlement with VISA and MasterCard removes that restriction. It doesn't apply to other companies like American Express.

[1] Some states did and still do prohibit credit card surchages.

IIRC it is against merchant agreements (or maybe that was paypal). Just like asking to see a ID if the back of the card is signed. A lot of places do both because a) they don't actually read the contracts they sign and b) they don't care: the "small business owner makes up his own rules" attitude.

There's a grocery discount chain by me (Woodmans) that simply doesn't take credit cards because of the fees. If you want to pay by plastic you will pay by Debit Card with PIN. Walmart's discount chain (Sam's Club) has the same policy except for MasterCard.

Out of interest, are you from NJ (or another full-service state)? I noticed this a lot in NJ but not in Massachusetts. I think it's because in MA I have to go inside to pay cash, which is a much bigger hassle than simply putting my credit card into the pump.

I am from NJ :) But this is in Houston, TX -- No full service here.

"Have a debit card, or slip and extra $20 in your wallet."

Off topic, but why is it that the word "an" is so commonly misspelled as "and"? I've done it myself many times, but it doesn't make sense- why do our brains insert an extra letter where it should not be?

I wouldn't categorize it as a misspelling. It's more of a typo because our brain is so accustomed to telling our fingers to type "and". It's kind of like how I can't remember some of my passwords unless I'm actually typing them.

Any smart merchant won't add a Surcharge for credit, but instead a discount for cash.

It's annoying as I use credit cards ONLY for building credit and cashback. Credit cards for me are a tool, not something that costs me money. If it will cost money to use it then I'll just stop using it :(

Nevermind, this law does not apply in these states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

I'm in New York, so its fine for me :)

Even if you don't use credit cards often, they still build credit. Likewise, + or - 1% in cash back won't set you forward or backwards too much, especially for the few merchants who will charge fees, to really justify changing habits. Pay 99% at merchant A (cashback), 100% at merchant B (cash), or 104% at merchant C (surcharge on credit card).

The cashback reward programs are funded by the fees merchants are paying. The fact that you are using credit cards to get free money from merchants seems to be an argument in favor of this change.

Yes I haven't thought of it this way :/. Credit history just shouldn't be based of the amount of usage of credit cards.

It isn't. I had a FICO score of 795 with no credit card utilization at all. I get the best loan terms and was approved for a mortgage of up to a million dollars recently. No credit card utilization ratio is required to have an excellent credit score. Simply having a card and stuffing it in a drawer for a few years, while never missing a utility or loan payment, will hit all the marks that matter.

I wonder how this will affect things like Walmart's Bluebird? It seems like, given the economy, the debit style cards offered by alternate sources than the banks might grow.

This is absolutely fine with me. It's about time.

Reply on news.ycombinator.com