Merchant Fees and Credit Cards

July 16, 2012

I’m already seeing some confusion about the settlement agreement regarding credit card fees. Let’s see if I can clear things up.

Up until now, the credit card companies would lay out their rules, fees, and payment structure, and the merchant could either take it or leave it. Typically, one of the rules was that you (the merchant) could not charge a premium to card-carrying customers. Put another way, you couldn’t offer a discount to pay in cash. Merchants would sometimes break that rule, and would sometimes pay the cost in the form of a canceled account with Visa or Mastercard. You want to be able to accept credit cards as a form of payment from your customers? Play by our rules.

But now, as a result of this legal settlement, credit card companies have agreed to no longer restrict merchants (with the threat of dropping their account) in this way. It will be interesting to see which merchants start directly passing the costs on to card-carrying customers, as oppposed to distributing the costs among all customers (which is what they do now). Personally, I doubt I would continue to frequent a merchant who insisted on penalizing me for using plastic. Cash is just too inconvenient.

Also let me point out that the government has nothing to do with this, and never has. There were no, and are no, federal laws restricting credit card companies from setting their own rules, nor laws preventing merchants from, or requiring them to, use or accept credit cards. This it not a federal government regulation issue, and never has been (though some states have their own laws). This was strictly a settlement agreement (not a new law).

Will be interesting to see how the alternative payment companies (like Square) benefit from this, if at all.