The pending anti-trust settlement, pitting the six major card issuers and two major card brands against the retailers, has sparked a legislative backlash.
Currently 28 states have either passed or are considering bills blocking retailers from surcharging consumers for credit card purchases, according to CUNA. Surcharging was forbidden but those rules were dropped as part of a proposed settlement to ongoing litigation.
The card brands argued that changing the surcharging rules indicates how serious the settlement’s proposed reforms are, but retailers say the easing of restrictions shows where the settlement falls short.
Retailers contend that surcharging for card use would put them at a competitive disadvantage, making the concession meaningless.
Retailers add that surcharging carries extra regulatory burden.
They must notify the card brand that they are surcharging and limit the surcharge to no more than the interchange rate and capped at 4% of the transaction. The retailer then must notify the consumer of the surcharge. Retailers also must post surcharge notices at both the store’s entrance and point of sale.
Nonetheless, the possibility appears to have fired lawmakers’ imaginations and led 18 states to propose banning card surcharging, according to the National Retail Federation.
Ten states—California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas—already ban surcharging.
When pressed for comment on the legislative efforts, an executive with Visa speaking on background, acknowledged that few retailers in the near term were likely to surcharge card transactions but argued the recent legislative activity was sound when considering the longer term.
First a few retailers might try it and then more take it up, just like in Australia where it became widespread, the Visa executive suggested. These state laws would prevent that. Australia undertook government-mandated changes to its payments market that allowed retailers to surcharge card transactions in 2003.
But Mallory Duncan, general counsel to the NRF, called the legislative effort Visa and MasterCard propaganda, and disregarded the idea that surcharging could ever become widespread in the U.S. with the current rules in place.
Retailers in Australia had rules against surcharging card transactions but they were ultimately eliminated, Duncan explained. He argued that in the U.S., the no-surcharging rule was not so much eliminated as re-written. The notification requirements make the practice far too cumbersome to be practical, he argued.
Duncan added that the fact that individual states can ban surcharging shows that the practice would face significantly more hurdles in the U.S. than in Australia.
"Even the few members we have had who have said they might be interested have come back to us after looking into it and reported they found it was just not worth it," the NRF attorney said.