There have been many recent examples of consumers paying credit card transaction fees in UAE which results in a higher price for products and services when paying with credit cards compared to alternatives. Some merchants, such as jewellery stores, liquor stores, etc take on additional fees for consumers making credit card purchases instead of using cash.
Credit cards offer safe transactions that are really unmatched, as well as better fraud protections than debit cards and cash. However, Is it okay for the stores to charge extra when you use a credit card?
Why do stores charge customers more for using their credit cards?
When the card is swiped at a terminal, the customer’s information travels to the switch of the bank with whom the terminal is registered. The switch identifies whether it is a Visa, or a Mastercard card and also which bank has issued it. All these players take a small share of the transaction as costs for the infrastructure and that is the charge that banks place on merchants. The reason why merchants may opt to charge customers more for using their credit cards is that they have to pay fees to accept credit card transactions. Credit card fees usually cost merchants between 1.5% and 4% per credit card transaction. These fees, often referred to as ‘interchange fees’, are charged by networks like Visa, Mastercard, American Express, and Discover, and they can add up and represent a considerable expense for retailers. The majority of merchants choose to eat interchange fees as a cost of doing business. Others may increase the pricing on their products in order to offset the expense of processing credit cards. However, for merchants such as gas station owners, where the product price is deeply scrutinized by consumers, the practice of passing along credit card fees to consumers is more common.
How much can a business charge for using a credit card?
When a business chooses to impose a credit card surcharge, there are protocols that have to be followed. For starters, the business has to notify the appropriate credit card associations and clearly disclose that it charges a fee for the use of a credit card. Credit card surcharges cannot exceed the cost of accepting the card or four per cent, whichever is the lowest amount, even if it costs the business over that amount to process your credit card payment.
Convenience fees work in a similar way since they are meant to help businesses cover processing costs. These fees usually range between 2% and 3% of the purchase price. Both of these fees are meant to help a business make up for any processing fees it may have to pay when you make payment. Due to this, fees should not exceed the processing fee amount. If businesses do attempt to charge more, they should be reported to your card issuer.
Is it legal to charge customers extra for using a credit card?
Prior to 27th January 2013, merchants were not allowed to pass along credit card fees to their customers. Instead, they were forced to absorb credit card transaction fees per their service agreements with Visa and Mastercard. If you came across retailers that were charging variable prices based on your payment method prior to 2013, they were in violation of their agreements with the credit card companies. The ability to pass credit card fees on to shoppers came about as the result of a settlement of a class-action lawsuit against Visa, Mastercard, and several banks by merchants including amazon.com, major airlines, health insurance, and many bricks and mortar stores. The merchants claimed that Visa, Mastercard, and the other banks were guilty of price-fixing and, in truth, many merchants criticized the settlement as being an insufficient solution to the problem. In fact, Walmart opted out of the original class-action lawsuit and filed a 5 billion dollar lawsuit of its own against Visa in May 2014, citing price-fixing as one of their primary complaints.
Will customers continue to pay more for using a credit card?
No one can predict whether stores will always have the option of charging consumers higher prices for using credit cards instead of cash. As of this date, merchants are fully within their rights to do so, although most of them do not. The reason is that consumers can always pick and choose to do business with those that do not charge credit card transaction fees as part of their product pricing and therefore offer lower fees. This is a particularly sensitive issue for the big-box discount retailers, who are constantly battling with each other over having the lowest prices. Increasing the price of their goods to cover credit card processing fees could be the last straw that causes customers to shop elsewhere.