In July of 2012, the well-known credit card companies Visa and MasterCard settled a class action lawsuit with payouts totaling over $7.5 million dollars. The reason for the lawsuit was simple: these companies were charging “checkout fees” and surcharges to customers who were paying with their credit cards. This was done in an effort to offset the cost of credit card processing for businesses, especially online businesses that deal largely with credit card payments.
The lawsuit was filed back in 2005 following outrage from many retailers who claimed that Visa and MasterCard required them to charge higher swipe fees to customers. These retailers were, in turn, suffering from lost business as a result of the charges. These charges were totaling up to 4% of the overall purchase price, adding up to millions of dollars over time.
New Laws for Credit Card Usage
As of early 2013, regulations that allow credit card companies and retailers to charge a “checkout fee” were passed into law, making it legal to charge up to 4% of a total purchase for credit card processing. The goal of this law was to prevent further class action lawsuits such as the one with Visa and MasterCard, which hurt their business operations significantly. Furthermore, with the rising costs required for businesses to accept a credit card payment, it was determined that these charges are justified so long as the customer is clearly notified of the charge prior to making the purchase.
As a result, many online shops have had to change their checkout process. In many cases, customers will be brought to a separate window prior to finalizing a purchase that requires them to agree to the surcharge by checking a box or clicking a button. This relieves the business from any responsibility for the fee, and customers can no longer take any legal action regarding charges from checkout fees.
Of course, there is still debate over whether or not such fees help or hurt businesses. On one hand, they help businesses offset the cost of processing payments using an electronic credit card machine. On the other hand, since not all businesses are yet charging the fees, they can also cause customers who do not want to pay the fees to shop elsewhere.
Still, it is expected that all companies that process credit cards and pay fees for doing so will ultimately implement some kind of “checkout fee” for credit card users. Only time will tell, however, what effect this will have on the market.
Authored By: Jimi Romanus