Who Should Pay Credit Card Fees: Retailers or Consumers?

January 8, 2018, Written By John H. Oldshue

A federal appeals court in California has ruled that businesses are allowed to charge customers extra fees when using credit cards. This ruling is similar to one from the U.S. Supreme Court in March of last year, which determined these surcharges were part of a business’s right to free speech.

In both cases, there were laws within the state prohibiting surcharges on credit card transactions, as there are a number of states. The laws do not prevent businesses from offering discounts for cash customers, which is how business owners got around the provisions. Example: Instead of charging 5% more for credit card payments, they charged 5% less for cash payments.

Retailers fighting the laws claimed that “discount” vs. “surcharge” was misleading to customers.

Deepak Gupta, an attorney representing those companies, said, “Consumers can’t be kept in the dark about the hidden cost of credit card swipe fees, which funnel vast amounts of money from consumers to large banks and credit card companies.”

While this is mostly a matter of semantics, there is merit to both sides of the issue. Merchants argue that customers are more motivated to avoid a surcharge than they are to receive a discount. Thus, adding a fee to credit card transactions encourages cash spending, while offering a discount encourages the opposite. If consumers use a credit card in a store that does not have a fee, the retailer has to absorb the cost.

This brings up a valid point: who should have to pay the credit card fees? As we continue to move toward a cashless society, card transactions will become more prevalent. If businesses are required to absorb the fees, they will be losing more money with each transaction. On the other hand, consumers are more likely to visit stores that offer convenient payment options, so the fees absorbed by the company may be offset by the extra business. And consumers are used to retailers absorbing these fees, so any change in this would be quite a paradigm shift.

The issue comes down to the business charging—or not charging—the fee. If the business is large enough to afford the minimal loss, they may do so as a way to maintain customer satisfaction. If you had the choice between a store that charged card fees and one that didn’t, which one would you do business with? For small businesses that have smaller profit margins, the surcharges may be the only way to stay afloat. The recent rulings by these courts seem to give the businesses a choice.



The information contained within this article was accurate as of January 8, 2018. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About John H. Oldshue

John Oldshue is the creator of LowCards.com. He worked for over 15 years in television and won an Emmy award for his reporting. He covers credit card rate issues for LowCards.com.
View all posts by John H. Oldshue