Pay Using Credit Cards – Yes, it is legal for businesses to charge 2-3% extra if you pay using credit or debit cards. In the year 2017, a ruling of a Supreme Court protected these extra charges and stated that it is a form of free speech for businesses. However, before this ruling, merchants had already won the ability to charge these extra fees in a 2013 lawsuit. The reason why these surcharges are legal is that these businesses are themselves charged a certain amount when they accept payments from credit and debit cards. Purchases from these businesses that are lower in amount have a less profit margin when customers use credit or debit cards as payment methods.
However, these surcharges are considered to be legal on the basis of how these businesses have imposed them. These include:
- Businesses should be clarifying before the transaction is made regarding how much they will be surcharging if the customer is paying through credit or debit card.
- The receipt should clearly display the amount which is charged extra for paying through debit or credit card.
- The amount surcharged should be less than 4% of the purchase.
What are the Minimum Purchase Requirements?
When we talk about the legality of surcharges on credit or debit card purchases, some minimum purchase requirements are allowed by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to this act, it cannot be more than ten dollars and it cannot be more than the amount other businesses are charging with the same network of the card.
Even though surcharges and minimum purchase amounts were not allowed by businesses in the past. Businesses still had minimum purchase amounts unofficially. These were a violation of the business’s agreement but not considered illegal.
On the other hand, some businesses have not adopted minimum purchase requirements and surcharges even though they are legal. The reason behind this could be that these businesses not aware of the fact that surcharges are legal. The retailer does not want to create a problem for the customer as the customer might switch to another brand. Another reason could be that charging this extra fee would a little complicated. In a certain industry as compared to others.
Is it fair for businesses to charge this extra fee on debit card payments?
Although it is legal for businesses to charge this extra amount. It will not be right to say that it is fair for businesses to charge their customers the additional amount. Which they are obliged to pay to the banks. We all have faced this situation. Where we are asked if we would like to pay through cash or card and when we say card. They tell us that we will be charged an extra fee. This is a method that businesses use so that they can save those charges. That they will have to pay to the banks.
Why do businesses charge 2-3% extra on debit card payments?
When we pay through our debit card for the items we purchase. The retailer or business has to pay the bank some fees or pay the rent for the swipe machine. These charges or fees are to be paid from their pocket. It is the cost that the business owner has to pay for running their business. With the advantage of accepting card payments. The availability of paying through debit cards is considered. To be a competitive advantage for the business as it would bring more customers.
These charges depend on how big or small the purchase is. If the transaction is small, the fee the business has to pay the bank is small but in terms of a bigger purchase like a laptop. Or a mobile phone, the fees can be heavy. This is the reason why businesses are not very keen to accept debit or credit card payments.
Businesses often encourage customers to pay in terms of cash. And they are not carrying any they led them towards a nearby ATM. Customers on the other hand are in a position where they cannot refuse to buy the item. And eventually, end up either paying in cash or letting them charge an extra 2-3%.
According to the Reserve Bank of India, charging this 2-35 extra is not fair as the retailer has agreed with. The card swiping machine bank that they would not charge any extra fees from the consumers.
What can consumers do if they do not want to pay these extra charges?
When you go to a retailer or business and are asked to pay two to three percent extra charges on the transaction. Where you have three choices.
- You can choose to walk away from the shop.
- Can choose to pay in cash.
- You can agree to pay two to three percent extra on the purchase.
However, there is a fourth option that you may not be aware of. You can choose to complain the bank when a retailer asks you to pay extra charges on your transaction. Banks have the ability to break their ties with businesses that surcharge their customers on debit or credit card payments.
Banks have a section known as “Merchant Services” on their website. This is where you can complain about such practices by businesses. This step would also make other businesses fear the consequences and be obliged to be fair. However, the question is how many of us are willing to go this far and take this step. It won’t be possible without our effort and time.
So now you know what you have to do. When you are asked to pay 2-3% extra on paying via your debit or credit card? You need to tell them about how you are not obliged to pay extra charges and complain to the bank.
What are the reasons for these extra 2-3% surcharges?
As countries are working hard to promote. The competition in terms of price among the brands of credit and debit cards in order to boost efficiency. There are various solutions coming up. These extra charges are one way to slow down the increasing costs of acceptance of cards for businesses. This rapidly growing cost includes the interchange cost for Mastercard and Visa rewards.
However, the businesses are obliged to pay the cost of card acceptance to the bank. Which has nothing to do with the increasing pressure of price on the various brands of cards. What plays an important role here is when businesses ask consumers to pay these extra fees. When they pay through debit or credit cards. This creates competition in price. Hence, customers opt for cards that let them have lower costs.
Charging 2-3% extra helps reduce the cost of the transaction. Overall as it makes consumers opt for cards that are lower-cost. For example, a customer would more likely choose a card brand that has low or no surcharges required. Instead of a card that has premium rewards.
When they accept credit or debit cards as payments options
Businesses usually complain about how they have to pay extra charges when they accept credit or debit cards as payment options. However, as customers, we think that it is just another fixed cost of operating businesses including the various others. Such as energy, taxes, real estate, labor, raw materials, necessary equipment and insurance.
There is no solid evidence of why businesses make surcharges necessary as a reason. That they have to pay from their own pockets. Some businesses impose extra fees for other costs such as energy, health insurance and labor as well. Business industries such as telecommunications and rental car follow these practices. Whereas, the airline business adds other surcharges including fuel. These surcharges become so huge that this practice was outlawed by the Department of Transportation.
Moreover, businesses also have to pay costs when they accept cheques as payment methods. When they accept cash, there is still a risk associated with it. Which is that cash can go missing or get stolen. On the other hand, cheques can be returned if there are insufficient funds. Both cheques and cash require man force to deposit and count which adds to the cost as well.
Accepting credit cards as a form of payment
Many businesses face the same cost as accepting credit cards as a form of payment. While accepting cheques and cash when they calculate on overall basis. This is the reason why businesses accept credit cards because the cost is almost the same in the long run.
In today’s time when the pandemic has affected the world. Businesses are more inclined towards accepting debit and credit cards as payment options rather than accepting cash.
Apart from all these reasons, as consumers, we are happier with a business. When it is accepting all forms of payments, rather than just having one option of payment. Isn’t that right? We all like the convenience and most of us are willing to pay a small price of it.
How surcharging is misused?
Some businesses misuse surcharging by generating profit that is additional although it is meant to cover up. The credit company fees are official. This can be termed as a consumer protection violation. A good example of such a violation is a scenario that took place in Australia. It is when charging these fees permitted in the country. On average the rates that were charged for Diners Club, Mastercard and Visa were 4%, 1.8% and 1.9%. However, the business charged 0.6% for Visa and MasterCard and 2.2% for Diners Club credit cards.
In Which countries are these surcharges illegal?
The extra charges on credit and debit cards were illegal in almost 10 states of USA including Puerto Rico. But recently a case in the court of New York lifted the ban on these surcharges and allowed businesses. To include these extra charges in the bill of your purchases. This made other states such as Oklahoma, Florida, California, Maine and Texas also lift the ban.
The only states in the U.S. where these surcharges are still illegal are Colorado, Connecticut, Puerto Rico, Kansas and Massachusetts. In all the other states it is legal for businesses to charge 2-3% extra on credit or debit card purchases.
How we can find out that there are extra charges for credit or debit card transactions?
There are some credit card companies that allow businesses to charge extra fees on purchases made using cards. But only if it is allowed by the law of the country or state. Such networks of credit cards are American Express, Visa, Discover and Mastercard. Even though these networks allow businesses to surcharge still they have a couple of restrictions on it.
Surprisingly, credit card payment network such as visa does not officially support these surcharges. The reason behind this is that these extra charges restrict cardholders to use cards as a method of payment. Businesses who still choose to charge two to three percent extra. On purchases must inform Visa prior of 30 days before they implement it.
Moreover, businesses need to make consumers sign when they enter into the transaction. While purchasing the goods and indicate whatever percentage they are charging extra on payment through cards. It is important that they must clearly add the surcharges on the receipt. So consumers can clearly see how much they are charging extra. Another important aspect that businesses must be aware of is that the extra fees should not greater than. What the business has to pay to the credit card company. These requirements are a standard for credit card networks such as Discover, American Express and Mastercard.
Is there any other option that is better than adding surcharges?
Even though surcharges are legal in some countries or states and illegal in others. There are some rules of the payment network that businesses have to follow. There is an alternative that businesses can choose instead of surcharges which is offering a cash discount instead. This cash discount is applied on the advertised price. If you observe a consumer’s mindset, he or she would never be willing to pay higher than the advertised price. This is why this tactic works perfectly.
Even though extra charges on credit or debit card payments are legal. Businesses try to limit them as this impacts how consumers perceive the business. Businesses do not want to risk their image which is why they opt for cash payment options. Consumers can easily switch to another brand if they see that your business practice is not right. So it is up to businesses to choose whether they would like to earn few extra percent. And lose many customers or to earn additional sales by choosing better alternatives.
What is the difference between debit card and credit card?
One common confusion that many of us face is that how both the cards are different from each other. A debit card lets you take out money from your own bank account. While a credit card lets you take out money that you borrow from the bank and has to be repaid. However, there are various advantages associated with credit cards such as building a good credit and having better security options.
A debit card can be comprehended as plastic cheque in other words. When you use it to buy goods, it draws money from your bank account. This means you can only spend less than or equal to the amount you have in your bank account, not more than that.
Whereas, a credit card acts like a loan that you have to repay at the end of the month. There is a limit for a credit card known as credit limit. This indicates how much you can spend using the credit card. Some known issuers of credit cards are Discover and American Express.