Merchants that accept credit cards for payment may soon be able to pass on interchange fees to their customers in the form of a surcharge.
Visa, Mastercard and a group of large U.S. financial institutions reached a memorandum of understanding (MOU) last Friday, resolving claims from a 2005 class action lawsuit brought by a group of U.S. retailers over the fees charged on merchants to accept credit cards. In addition to providing for a $6 billion payment to retailers, the MOU also provides for policy changes that will allow sellers to charge customers more for paying via credit card.
Though it has yet to be approved by the U.S. District Court for the Eastern District of New York where the case was filed, the MOU has been agreed to by all defendants and the court-appointed class counsel for the merchants, meaning court approval is likely to be a formality at this point.
Interchange fees have long been a thorn in the side of any merchant accepting payment via credit cards, whether they sell to consumers or other businesses. In essence, the fee is a percentage of the total value of a transaction that, at least until the settlement is expected to enter into force early next year, had to be paid solely by the merchant. The fees fall especially hard on smaller companies, who lack the technical expertise necessary to navigate through the notoriously complicated process by which these rates are established.
Under the terms of the settlement, however, these companies will be able to recover their interchange fees from their customers, with some notable limitations. For example, merchants using a surcharge to offset their cost of acceptance can only charge a fee equal to what they pay to accept credit cards. They must also disclose the surcharge to the buyer at the point of entry, point of sale and on the receipt.
Additionally, the settlement does not apply to debit cards, and does not apply in the 10 states where surcharging remains illegal: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Stay tuned to NACM's blog and this week's eNews for further updates.
- Jacob Barron, CICP, NACM staff writer