Will Merchants Charge Consumers for Using Visa and MasterCard Branded Cards?

For several years, Visa and MasterCard prohibited merchants from surcharging consumers for using their branded cards. After all, if Visa permitted merchants to surcharge consumers, but MasterCard did not, consumers would choose MasterCard over Visa. As a result, merchants absorbed the card fees, or, more likely, built the cost into the price paid by consumers. Meanwhile, consumers had no price incentive to choose between Visa or MasterCard. These rules insulated Visa and MasterCard from competitive pressure to lower their fees – at least, temporarily.

Several merchants brought a class action against Visa, MasterCard and their member banks (the “Defendants”). The merchants claimed that these rules prevented them from steering consumers to more cost-effective payment methods, illegally insulating the Defendants from competition.

A proposed settlement of the class action would provide a $6 billion fund for merchants and others. In addition, Visa and MasterCard would permit merchants to surcharge consumers who use Visa and MasterCard branded credit cards.

But wait – didn’t merchants already build the card surcharge into the cost of their products?

Not missing this detail, on February 4, 2013, New Jersey’s Senate Commerce Committee will consider a bill (S2533, same as A3758) that would prohibit “retail mercantile establishments from imposing surcharges on consumer credit card purchases.”

If state laws prevent merchants from exercising the rights promised them under the settlement proposal, will they reject it and demand a bigger settlement fund from the Defendants?  Stay tuned….

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