U.S. retailers may shy away from charging consumers extra to use credit cards, even though they are free to do so under a proposed legal settlement, because of intense competition in the industry.
Wal-Mart Stores Inc. (WMT:US), Target Corp. (TGT:US) and Macy’s Inc. (M:US) are among chains that have said they don’t plan to place fees on purchases made with credit cards using the Visa Inc. (V:US) and MasterCard Inc. (MA:US) payment networks.
Surcharging became an option for merchants that use those networks on Jan. 27 as part of a proposed lawsuit settlement that Visa, MasterCard and some of the biggest U.S. banks reached with retailers in July. The change will not supersede laws in 10 states, including California, Florida, New York and Texas, that limit the fees. American Express Co. (AXP:US) wasn’t part of the deal.
“We fully expect most retailers won’t surcharge credit cards with the abundance of alternatives available to consumers,” said Joe Ridout, a San Francisco-based spokesman for Consumer Action, a nonprofit group focused on consumer rights. Smaller, independent stores may be more willing to levy the fees because they pay higher charges to banks for credit card transactions and don’t have the bargaining power to negotiate lower ones, Ridout said.
Wal-Mart, the world’s largest retailer, has no plans to start surcharging, Randy Hargrove, a spokesman, said yesterday in an e-mail.
“The proposed modification to the no-surcharging rule for Visa and MasterCard provides no benefit to customers or merchants such as Walmart,” he said.
Target, the second-largest U.S. discounter, and Macy’s, the second-largest U.S. department-store chain, won’t institute surcharges either, Jenna Reck and Beth Charlton, spokeswomen respectively for the two companies, said yesterday.
Sears Holdings Corp. (SHLD:US), the largest U.S. department-store chain, has no plans to issue the fees, spokesman Chris Brathwaite said in an e-mail. J.C. Penney Co. didn’t respond to an e-mail seeking comment.
Visa and MasterCard’s proposed settlement, which won preliminary court approval in November, will end a seven-year case brought by retailers alleging that the card companies conspired with major banks to fix interchange, or swipe, fees charged to merchants when customers pay with plastic. The agreement provides for a temporary reduction in rates for merchants and allows them to impose surcharges on customer purchases.
Kroger Co. (KR:US), the largest U.S. grocery-store company, would consider adding a surcharge to customers using credit cards with high fees, Chief Executive Officer David Dillon said last year. The settlement may bring more transparency and efficiency to the market, he said.
Keith Dailey, a spokesman for Kroger, declined to say whether the company will start levying surcharges and said it’s developing a plan to drive more customers to use lower-cost payment options.
Several large retailers, including Wal-Mart and Target, say the settlement gives card companies too much leeway to raise interchange rates in the future. Interchange fees average about 2 percent of the purchase value and must be paid by retailers to the bank whenever a customer makes a purchase with a credit card.
A hearing on final approval of the settlement is scheduled for Sept. 12.
The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).
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