February 19, 2013

Checkout Fees

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On January 27, 2013, retailers gained the option of charging a “checkout fee” to customers who pay with a credit card. The fee can only be charged to credit card users (not debit card users), and it is typically between 1.5% and 3% of the total purchase price. Say what? Now that I have your attention, let me give you a little background…

A group of retailers have long been in a legal battle with Visa and MasterCard over “swipe fees.” (Swipe fees are the costs a retailer must pay to a credit card company every time a customer uses a credit card.) The group of retailers alleged that the credit card companies were colluding and fixing the amount of swipe fees and that this was anti-competitive behavior. As part of the $7.25 billion settlement that was reached in July 2012 between Visa and MasterCard, the group of retailers, and nine major banks, retailers now have the option of passing these “swipe fees” on to credit card-using consumers as “checkout fees.” I know this sounds bad, but please don’t panic. I didn’t immediately sound the alarm on these potential checkout fees because I’m not that worried, and I don’t think you should be either.
I’m not that worried for three reasons:
  1. Many retailers like Wal-Mart, Macy’s, JCPenny, Limited Brands, and Gap Inc. have raised their objections to the settlement through the National Retail Foundation. Why would a retailer raise an objection to the ability to pass on a cost to the consumer? Because they know that if they add the surcharge to their customers, but their competitors do not, they will likely lose many of their customers. I also believe many retailers suspect that if they are the first to add the surcharge to their customers they will likely still lose customers, even if their competitors later add on the surcharge, because they were the initial bearers of bad news. Remember, retailers have the option to charge a checkout fee; they are not required to.
  2. According to Consumer Action, should retailers decide to charge the new fee to credit card users, they are required to clearly disclose it by using signs at the store entrance or notifications at the point of sale (whether at a store or online). Retailers must also provide details on the customer’s receipt clearly stating that the merchant is imposing the checkout fee and that it is not greater than the swipe fee being imposed on the retailer. If consumers pay attention, they shouldn’t be surprised by a retailer charging this fee, and if they realize the retailer is charging a checkout fee, I bet they will take their business to another retailer that isn’t passing the cost to the consumer.
  3. Checkout fees are already illegal in ten states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Many of these are some of the more populous states in the U.S., and if other states’ constituents get mad enough because they start seeing checkout fees, I would bet the list of states banning checkout fees will grow.
In conclusion, I’d be very surprised to see most large retailers implement checkout fees. Smaller retailers that could really benefit from cutting a significant expense, or retailers that have clearly differentiated or valued products compared to their competitors’ products or services, might have some incentive to implement the surcharge, but I really think retailers’ fears of upsetting their customers will minimize the implementation of this new fee.

If I’m wrong, I give you fair warning: I will be the guy at the grocery store writing a check!


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