Retailers Can Now Charge Extra for Credit Card Purchases

Retailers in most states will now be able to add checkout fees to customers’ credit card purchases, because of a settlement of a class action suit between credit card companies and a class representing 7 million retailers.

The settlement agreement, filed July 13 in the federal court for New York’s Eastern District, requires Visa, MasterCard, as well 16 other banks, to modify existing “no surcharge” policies for retailers. This would let retailers charge extra for credit card transactions, subject to certain caps and conditions. Merchants will have to disclose the fees to consumers at the point of sale and on receipts.

Ten states have laws that prohibit credit card surcharges by retailers, and those will not be affected by this agreement. Those states are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas, according to Visa.

“We know that merchants care about their customers and anticipate that they will not impose checkout fees, particularly because the value merchants derive from card acceptance far exceeds their costs,” said Noah Hanft, MasterCard’s general counsel and chief franchise integrity officer, in a statement.

The agreement also requires that Visa and MasterCard negotiate with merchant-organized buying groups, so those groups will have the ability to haggle collectively over interchange fees and other conditions of credit card usage.

The plaintiff’s law firm said in a statement that this provision will put pressure on Visa and MasterCard to limit or reduce interchange fees.

The $7 billion settlement—which the plaintiff attorneys called the largest antitrust settlement in U.S. history—includes a payment for alleged past damages in the amount of $6.05 billion to be divided among class members, as well as an eight-month reduction in the level of interchange fees paid by merchants, estimated to have a value of $1.2 billion.      

The case, first filed in 2005 by plaintiff Jetro Holding, accused the credit card companies and banks of violating antitrust rules by conspiring to fix the fees they charge to merchants. The companies admitted no wrongdoing in the settlement.

The settlement could be appealed and still awaits formal approval, but provided it survives further legal challenges, the credit card companies expect it to go into effect in early 2013.

The National Retail Federation, which was not a party to the lawsuit, gave only tacit support to the settlement.

“The money is significant but money is only temporary—it’s here today and spent tomorrow,” said senior vice president and general counsel Mallory Duncan in a statement. “What we need are changes in the rules that bring about transparency and competition that would be here for years to come. The test will be whether the injunctive relief is meaningful. Unless it is, the card market will stay broken and neither merchants nor their customers will achieve a long-term benefit.”

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