Now that retailers have made the peace with credit card companies, allowing them for the first time to pass along processing fees to consumers, can we expect higher prices at the cash register?
In California, at least, the answer is no.
State law prohibits retailers from tacking on an extra fee for using plastic (although discounts for paying in cash are hunky-dory).
"Credit card companies can change their rules, but they cannot change California law," said Lynda Gledhill, a spokeswoman for state Atty. Gen. Kamala Harris.
That said, consumers may be hard-pressed to know whether processing fees are nevertheless being slipped into store-shelf prices.
"A lot of merchants will consider it a cost of doing business and will raise all their prices," said Linda Sherry, a spokeswoman for the advocacy group Consumer Action. "Consumers won't know if this is for the processing fees or not."
At issue is a settlement last week between millions of merchants and Visa and MasterCard, plus a handful of leading banks. The card industry agreed to pay more than $6 billion to settle a lawsuit alleging that processing fees were deliberately kept at high levels.
Merchants pay an average of 2% of each credit card transaction to Visa or MasterCard to process the sale, regardless of whether the customer bought a BMW or a piece of Bazooka bubble gum. But their past contracts with card companies prevented them from passing along these costs to consumers.
Under the terms of the settlement, retailers will now be free to charge higher prices to reflect those costs — if state law allows. About 10 states have no-surcharge laws similar to California's.
And, of course, merchants will also have billions of dollars in settlement cash to split among them.
"The money is significant, but money is only temporary — it's here today and spent tomorrow," said Mallory Duncan, vice president and general counsel for the National Retail Federation, an industry group. "What we need are changes in the rules that bring about transparency and competition that would be here for years to come."
By that, he means charging 2% per sale is too darn much, especially considering that card companies process millions of card transactions daily and thus enjoy huge economies of scale. He'd also like to see processing fees printed on people's receipts, a practice now blocked by Visa and MasterCard.
Consumers have long been the odd man out when it comes to so-called swipe fees. Visa's and MasterCard's rules for merchants have prevented us from knowing how much is being charged, and have forced retailers to swallow such costs.
On the debit-card side of the fence, the Federal Reserve last year capped the base fee that can be charged to process a sale at 21 cents, well below the previous average of 44 cents. The Fed determined that a 21-cent fee (plus a little extra for fraud protection) is a "reasonable and proportional" price for moving money in the digital age.
If 21 cents is a reasonable amount to process a debit-card sale, how is it, retailers wondered, that they can be charged $2 in fees when someone buys a $100 pair of shoes using a credit card?
The card companies have yet to come up with a good answer to that question, and it appears they're hoping merchants will stop asking if their pockets are bulging with settlement greenbacks. But merchants should keep pressing, on behalf of their customers, for greater transparency.
For too long, an oligopoly of card companies and banks has called all the shots for use of plastic and has steadfastly refused to disclose actual costs of doing business. This has left virtually everyone — merchants, consumers, lawmakers and regulators — to make their best guesses as to fair prices.
"More price disclosure and choice is a good thing," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. "Right now, consumers don't know how much the different types of payments cost. Consumers can make better choices with more information about cost."
So last week's settlement was a step in the right direction but not the end of the story.
California consumers are still protected by the state's law against surcharges for using plastic, but it will be up to us to ensure that we're getting a fair deal.
As Consumer Action's Sherry observed, this may be tough. You'll need to do some serious comparison shopping to get a sense of whether a particular merchant may be trying to do an end run around the law with higher prices.
Don't be shy about asking whether a discount is available if you pay with cash or a debit card. Merchants don't always advertise the fact that two prices might exist.
And if you think you're getting penalized for using plastic, don't hesitate to take your business elsewhere. "That's the only way merchants will know that they've gone too far," Sherry said.
Dropping a line to the attorney general's office probably wouldn't hurt either.