Small retailers avoid card fees, seek better rules

Posted: Mar. 9, 2013 4:24 pm Updated: Mar. 30, 2013 9:00 pm

Herald-Whig Senior Writer

Retailers who hoped an antitrust lawsuit against credit card companies and big banks would give them some relief from hidden fees say they're in worse shape now than before a federal court ruled in their favor.

Visa, MasterCard and some of the cards issued by major banks charge 1.5 percent to 4 percent when plastic is used to pay. Their long-time rules held that retailers could not charge customers to recover those fees.

A court settlement last July gave the retailers the right to collect fees starting in late January, but the retailers must tell shoppers they are being charged, and risk taking the blame for higher costs.

"No one is doing it," said Bill Fleischli, executive vice president of the Illinois Petroleum Marketers Association and the Illinois Association of Convenience Stores.

"If you tell someone you're going to charge them 4 percent more if they use their card, it will drive customers to your competitors."

The plaintiffs in the lawsuit ranged from Leon's Transmission, a California auto repair company with seven locations, to Payless ShoeSource, which has thousands of shoe stores across the country. They charged that Visa, MasterCard and the banks conspired to fix the fees on credit card transactions. Other big merchants including grocer Kroger, and drugstore chain Walgreen, also had filed suits.

The surcharges can't be slipped in without telling customers. The agreement requires retailers to notify customers both before and after a purchase. That means visible signs at a store entrance and its cash registers. And the sales receipt has to list the surcharge separately. Websites must notify customers that they're about to pay more for something they buy online.

"For most businesses the court settlement was not acceptable because it doesn't do anything about credit card rates," Fleischli said.

The whole point of the lawsuit was that credit card and banking giants worked together to set rates that were higher than dictated by economic conditions. Retailers who accept fees also can no longer sue the card issuing companies.

The number of retailers who pass along the transaction fee is likely to be relatively small. Big retailers like Wal-Mart and Target have already said they won't do it. And under the agreement, a multistate retailer with stores in any of the 10 states where the surcharge is illegal can't impose it in states where it is.

The surcharges are illegal in New York, California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas. Legislatures in another 13 states -- including Illinois and Missouri -- are considering bills to prevent "check out fees."

The lawsuit's intent was to lower the transaction fees that merchants pay, says Mallory Duncan, a senior vice president at the National Retail Federation, a trade group that opposed the settlement.

In many cases, shoppers are already paying for the transaction fees -- they're tucked in the overhead that retailers have to pay, along with rent, salaries, cost of merchandise, etc. So retailers can nudge their overall prices higher rather than overtly passing along transaction fees.

Another reason many shops will avoid passing on the fees -- they don't want to give customers a reason to check out their rivals.

"You don't want to give somebody else a competitive advantage," says Michael Sansolo, a retailing consultant in Washington, D.C. He predicts most retailers will do nothing

Asking customers to use cash is another possibility. Gianfrancesco says she deducts 2.5 percent if a customer decides not to use plastic.

But that won't work in a bakery where people on the go want to buy a muffin and coffee with a swipe. Gretel-Ann Fischer who owns such a bakery in Vermont told the Associated Press that she won't accept credit cards for purchases under $5.

She imposed the minimum because of a 17-cent per transaction fee that's in addition to the 2.5 percent that Visa and MasterCard charge for the entire purchase. Seventeen cents on a $2 cup of coffee was too much for the bakery to absorb.

Credit card transaction fees cost the bakery $10,000 a year, a big bite for a company with annual revenue of about $400,000. But Fischer and her husband, Brian, say passing the fees along just isn't an option.

"I think you'd alienate a bunch of customers," Brian Fischer said.

They've found a downside to their cash-only decision too. Many of their longtime customers don't carry cash.

The Associated Press provided information for this story.