What You Need to Know About the New Checkout Fee

by Emily Guy Birken · 10 comments

Credit card payment

Perhaps you’ve heard about the big settlement last year between merchants and credit card issuers regarding interchange fees. Those are the “swipe” fees that merchants have to pay in order to process credit card payments. Not only did this settlement determine that merchants will receive a $7.2 billion payment for past interchange fees and a temporary reduction in those fees, but it was also decided that merchants may now legally add a checkout fee — paid by the customer — to credit card transactions.

Having to pay 1.5% to 4% of each transaction for the convenience of credit could be a tough pill to swallow.

Here’s a breakdown of what you need to know about checkout fees:

The Fee Won’t Take You By Surprise

While merchants have the right to charge this fee, they also must disclose that they’re doing so. In stores, you’ll likely see a notification either at the front door or on the register. Online, the business will generally disclose the fee on the homepage.

In addition, it’s important to remember that the retailer isn’t charging this fee in order to make a profit. They’re simply passing the cost of their interchange fee along to the consumer. They may only charge the same amount that the credit card network charges them for each swipe.

The Fee Doesn’t Affect Debit or Prepaid Cards

Though using your debit card may feel almost identical to using a credit card, they’re treated differently when it comes to swipe fees. According to Janna Herron of Bankrate, “even if the retailer runs a debit card as ‘credit,’ the credit card surcharge doesn’t apply to you.” So you should feel perfectly comfortable using your debit card for any purchase.

Rewards Cards Might Be Affected

Credit cards that offer cash back or airline mile rewards often have the highest interchange fees, which helps to offset the banks’ costs in offering the rewards. There’s some speculation that issuers might scale back their offered rewards in order to offset the costs of losing those high interchange fees.

However, it’s important to note that rewards cards tend to have higher interest rates, and most issuers can count on cardholders carrying balances on their rewards cards. So it’s not as if seeing their interchange fees reduced will make the profits completely dry up.

Since banks rarely accept even a minimal loss of profit without a fuss, rewards cardholders should probably prepare for an increase in annual card fees or slightly higher interest rates.

American Express Isn’t Included

Finally, it’s important to note that last summer’s settlement was for Visa and MasterCard, and didn’t include American Express — which just happens to charge the highest interchange fees of the bunch. So if a retailer accepts AmEx (and now you know why many don’t), they can’t legally charge a checkout fee for that card.

The Bottom Line

Adding a fee to something that used to be free is often the quickest way to anger a loyal customer. Because of that, it seems unlikely that we’ll be paying checkout fees everywhere we shop, even though they’re now legal.

Have you experienced the new checkout fees anywhere? How do you feel about them?

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{ read the comments below or add one }

  • Property Marbella says:

    Anyone who believes that credit and payment cards are free must learn and understand the adage:
    The only thing who is free is the cheese is in the mousetrap.

  • Robert says:

    I sent an e-mail to my Credit Union: “I noticed that due to a lawsuit, merchants may charge a fee for using a credit card instead of cash. Will I be charged a fee by the merchant for using my NFCU Visa Check Card instead of cash? Will I be charged by the merchant if I use my Check Card for credit, even though it is processed as a debit?”

    The reply: “Transactions made with your Visa Check Card and/or CUCARD will not be affected by the recent credit card surcharge settlement. Please be advised this surcharge does not apply to debit cards transactions, whether you select the Credit or the Debit option when you make a purchase. If you have any further questions, please let us know.”

    I recommend you contact your financial institution so you know for yourself.

    • Cyrus says:

      I stand corrected Robert – thanks for the info. I will contact my local bank as well to be sure. Score one for debit cards! I haven’t used credit cards for years and now I have yet another reason not to use them!

  • Lifeisdynamic says:

    Interesting trend developing in USA which requires watching for us here in Australia. Some merchant and service outlets here do pass on the transaction fee to their customers for using credit cards. These businesses are required by law to notify the customer (often in fine print and must search for the information). However, charges of 1.5% is the norm and I have yet to see any percentage above that. Certainly a fee of 4% would see me scuttling to find another method of paying for my needs along with a letter of complaint. As far as I can tell, there is no justification for charging such a high amount on an electronic transaction here in Australia.

    I can see the advantages for some people who prefer to use credit card for reward points, however, in the end someone has to pay for the advantages, it might as well be the credit card user as certainly will not be the credit provider!

    If the public are accepting of such ongoing imposts as credit charges for conducting business on a financial product the user is already paying for (through an annual charge), then financial institutions will ‘milk the cow’ for all there is to take. The more incentives there are to use a credit card (reward points) the more the financial institutions feel justified to ask ALL users to pay.

    Seems to me, the GFC was about the provision of credit and its encouraged use among the ever-suffering public.

    One to watch here!

  • Long says:

    It should be noted that some states, like California, will not be affected by this law change.

  • Cyrus says:

    I’m pretty sure that debit cards would be affected as well, if you process it as “credit.” When you do that, the transaction gets processed through the Visa or MasterCard network in the exact same way as a credit card. I don’t think the merchant or the network would be able to tell the difference between the two. When people refer to debit card transactions, they often are referring to using it as an ATM card.

  • Julie says:

    Is Discover Card included in this? Is this change already in full swing?

  • Roxy says:

    Glad to see AMEX wasn’t included. That’s the card I use the most… and my favorite rewards card!

  • Chris@JumboCD says:

    It is interesting, on one hand we are keeping being told we will be moving to a cashless society, and on the other hand, we may pay big bucks to do so. I’ve seen some gas stations going back to offering a lower price for cash.

    Apparently, electronic money isn’t viewed as being good for everyone.
    cd :O)

    • Jane Savers @ The Money Puzzle says:

      Canada has just done away with the penny. Transactions that are paid in cash are rounded up or down to the nearest nickle. The government would prefer that we all non-cash forms of payment so that all transactions could be easily monitored and the government would be spared the costs associated with cash.

      I love my credit card points and I plan how and, to a lesser extent, where I shop based on what I can get out of it. If I end up with an extra expense I will shop elsewhere.

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