As of Jan. 27, the plastic in your pocket might have gotten a little pricier to use, depending on where you swipe it.
Thousands of retailers across the country became legally permitted to pass on to their customers surcharges of up to 4 percent on transactions paid by credit card. It’s the result of an antitrust settlement reached in July 2012 between Visa, Mastercard, retailers and nine major banks.
But as local small businesses are already tiring of seemingly unfair and often complex electronic transaction fee schedules and rates, they see this new allowance as superfluous at best – at worst, sticking the charge to the customer would make them out to be the bad guy.
“I don’t think it’s going to change much,” said Sohil Ghodasara, manager of Smoke Shop in downtown Johnstown. “Most retailers won’t be adding any more charges to the customer. Retailers most likely will be eating them up. If you start charging them extra, they’ll just go to another place.”
Note that the fees will apply only to credit transactions, meaning using your bank card to pay by debit will remain surcharge-free. Also, retailers aren’t actually required to charge extra per swipe. They’ve simply been given the option to impose the extra charge, to recoup the fees they pay to your bank when making sales electronically.
If a business does decide to charge, you’ll know – it’s required to post signs at the door, at the register and on the receipt, notifying customers of the extra fee.
Usually, these charges, called “interchange fees,” run between 1.5 percent and 3 percent of the total sale. They’re the reason why smaller stores impose minimums on credit card sales and won’t let you charge a five-pack of Juicy Fruit that costs 75 cents to your “Uber-Platinum Rewards” card. It’s just not worth the price of doing business – electronically, that is.
“We run tight as it is,” said Ben Gallagher, manager of Village Street Cafe along Grove Avenue in the city’s Moxham neighborhood. Gallagher also recently secured a second location on Broad Street in the city’s West End. “That’s just another thing we have to (shell out) for and it’s less cash flow.”
Small businesses have never been happy about the going rate of electronic transactions. Their credit card acceptance rates tend to be steeper than those of the big box stores, even though the sheer volume of mass retailers’ daily sales practically negates any sort of impact that transaction fees could have on overhead.
“The banks are just greedy,” said Ghodasara. “If I had more stores, I would be getting a much better rate. If I was a chain, banks would be coming to me for my business. With only one small store, we don’t have any room to negotiate – we end up paying more.”
And for small-business owners, figuring out exactly how their credit rate contract works – and digging up all the hidden charges and provisos – is not for the faint of heart.
“In a lot of ways, it’s like pickpocketing,” said Gallagher. “To be quite honest, credit card companies are the worst.”
There are 10 states – and Pennsylvania is not one of them – where existing state laws exempt citizens from paying more for plastic: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
Also, it wasn’t until the Dodd-Frank Act went into effect in 2010 that businesses could legally impose up to a $10 minimum credit card transactions.
Before that, retailers most likely adjusted their prices across the board to compensate, according to Edgar Dworsky, the founder of watchdog site ConsumerWorld.org.
“Anyone who accepts a credit card today has already factored the costs of credit card processing into their prices,” he said. “To add a surcharge on top of that, the merchant will be, in essence, double-dipping.”
Dworsky said that while consumers are being urged to “vote with their pocketbooks” for their local outlets that will not be charging extra, the reality of small-town business makes that tricky.
“If there is only one shoemaker or barber, customers may have no choice, other than to switch to cash or debit cards,” he said.
Could this lead to an emphasis on paper money for many small-town transactions? Gallagher and Ghodasara say they will most likely shirk the surcharge allowance, in favor of rewarding other payment methods.
“We wouldn’t charge a fee for a card, but we might give them an incentive to use cash,” Ghodasara said. “Which we’d rather deal with due to the charges from the bank.”
Lee Shannon, owner of Dively’s Tavern at Derby and Roxbury streets in the Roxbury section of Johnstown, has never dealt in anything but cold, hard cash. Customers trying to start tabs or pay them with a card are pointed to an ATM inside the bar. Although the vendor that maintains the machine for him cuts out a good-sized chunk of the service fees, Shannon said it ultimately helps things run smoother.
“For me, it’s just cleaner to have the ATM and just deal in cash over the bar,” he said. “It’s worked for us.”
It provides a tangible representation of the customers’ disposable income, which, according to Shannon, saves customers from charging other patrons on bar tabs. According to a study published last year in the Journal of Consumer Research, that could help consumers spend less overall.
Essentially, the study found consumers were more likely to associate the benefits from their cards’ reward programs with a purchase, rather than the “pain” of spending the money directly out of pocket. Cash customers also were much more concerned with the hidden or indirect costs of something, such as shipping, warranty or installation.
“That’s how the credit card companies have driven their deals – giving perks for their cards,” said state Rep. Gary Haluska, D-Patton.
“What they’re trying to do is achieve those points and cashback perks.”
But those “rewards” still come at a cost – they’ve just been hidden by positive-sounding concessions.
So, what does this spell for the local consumer – a more pronounced emphasis on cutting credit card companies out of bottom lines or a focus and reward system for cash payers?
Dworsky said he feels small businesses would have a strong reason to charge, given their fee rates, but local consumers shouldn’t expect payment methods to be thrust back into the Stone Age.
“It would be very hard to figure out the surcharge on an abacus,” he said.
Click here to subscribe to The Tribune-Democrat print edition.
Click here to subscribe to The Tribune-Democrat e-edition.