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A loss for consumers in the wallet

Published: January 31, 2013
Section: Opinions


It’s not often that I’m excited to spend most of my year in Massachusetts. With toll roads, Dunkin’ Donuts everywhere and an overabundance of Patriots/Red Sox/Bruins/Celtics fans, it can get to be a little much. As of this past Sunday, however, going to school in Massachusetts has a major benefit. This week in Massachusetts, it did not become more expensive to use a credit card.

Starting this week, as part of a settlement between merchants on one side and Visa, MasterCard and the several major banks that partly-own them on the other, merchants in many states can add a surcharge to customers paying by credit card.

Luckily, Massachusetts is one of the 10 states where these added charges cannot occur.

When someone pays with a credit card, merchants pay a fee to be able to process the transaction. It is a fee for use of the bank-supported credit card network—and for using the customers they have, who happily swipe their cards. Some places have minimum prices before they accept credit cards as a safeguard to ensure that they aren’t losing more money on the transaction than they take in. Under new rules that took effect this week, merchants can add a charge (as long as it doesn’t exceed the rate they pay) on almost all credit card transactions.

Why is this happening? Simply put, merchants that accept credit cards claimed that Visa, MasterCard and issuing banks were wrongfully changing the prices they charged per transaction. While it’s generally been legal to offer a discount for using cash, only recently did it become legal to implement a minimum before using a credit card. For example, some restaurants or delivery places refuse credit cards on transactions under $10 because it’s not worth it for them to take credit and then pay the banks and card companies.

Luckily there are some exceptions that can help, even when not in states like New York, California, Texas and Massachusetts where the surcharges are prohibited.

Using debit cards cannot result in a surcharge. So while some may naturally be able to avoid these fees, it could take a while before other states block them, too. After all, four out of five states have nothing to prevent the surcharges.

Using a credit card, rather than carrying cash, could become a lot more expensive. While it remains to be seen whether retailers and restaurants will add these surcharges or not, the possibilities alone encourage us all to carry more cash as a general rule rather than credit.

I’ve had a credit card in my own name since a little after my eighteenth birthday. It became especially useful when I got to Brandeis because my bank, Wells Fargo, doesn’t have a location in Massachusetts. And with things like rewards programs, credit cards can theoretically be better than cash if one manages to avoid interest. And on the off chance of getting pickpocketed or otherwise losing a wallet: if you keep a lot of cash, it’s gone instantly. If you keep minimal cash and make most purchases through a credit card, then as soon as it’s gone, a quick phone call is all it takes to make the small plastic card useless.

Plus, certain purchases, like plane tickets or large appliances are simply unreasonable to purchase with cash. Imagine walking into a Best Buy to buy a high-end HDTV. The TV costs $1,000 plus tax, but because of the surcharge—though I don’t know whether Best Buy will add the additional fee—it could cost another $30 before even considering taxes. With expensive purchases, it seems unreasonable to carry so much cash.

Unless every merchant in a given industry, such as similar restaurants or similar specialty retailers, implement the fee, then consumers should naturally flock to others who don’t charge the checkout fee. For instance, if Walmart were to add the fee while other retailers abstain, one could expect Walmart to lose customers to its competition.

While the new permitted charges won’t affect any of us on campus while we are in
Massachusetts, in a few weeks when many of us head home for February break, things
will likely be just a tad more expensive. Consumers are now footing the bill for this dispute between credit card companies and merchants, paying not only fees or interest for having the card, but now forced to pay for the privilege to use it.