Customers at Towson Hot Bagels usually pay with credit, not cash, when buying a bagel or a bottle of water, triggering fees the merchant must pay to process each transaction.
Now, the shop's owner and retailers across the country may recoup "swipe" fees as a result of a preliminary settlement with Visa, MasterCard and major banks. When a consumer pays with a credit card, retailers can tack on a surcharge or "checkout fee" of up to 4 percent of the purchase to cover processing.
But there's no rush among merchants to start charging this fee. Independent shop owners, national chains and retail trade groups insist they have no desire to pass credit card fees along to consumers so directly. Ten states bar such surcharges, and 18 others — including Maryland — are considering doing the same, according to the Electronic Payments Coalition, which represents Visa, MasterCard and the banks that issue those cards.
"We definitely are not considering charging our customers the fee," said Ciro Scotto, owner of the chain of bagel shops in Towson, Canton and Timonium, where about 90 percent of customers pay with credit cards. "People don't carry cash anymore. I don't think it's fair, charging extra."
Walmart and Target, in separate statements, said adding a surcharge would enable payment networks Visa and MasterCard to continue charging "unfair" fees. Allowing the surcharge offers no benefits to the merchants or their customers, Walmart spokesman Randy Hargrove said.
The fee merchants pay for credit card processing — sometimes called an interchange or swipe fee — ranges from 1.5 percent to 4 percent of a purchase, with the average running 2 percent, according to the National Retail Federation. Retailers pay about $30 billion annually in swipe fees.
Visa and MasterCard get some of that, but the bulk of the money goes to the bank issuing the credit card. Eight years ago, merchants filed a lawsuit accusing Visa, MasterCard and the big banks of colluding to raise swipe fees. As part of a preliminary $7.25 billion settlement reached last year, a merchant, as of Jan. 27, can recoup the swipe fee directly from credit card customers, as long as it doesn't exceed 4 percent of the purchase.
But it might turn out not to be much of a victory for retailers because they are reluctant to charge card users more — at least for now.
"Let me tell you, it's very tempting," said Steve Suser, co-owner of Sascha's, noting that his Charles Street restaurant pays thousands of dollars annually in swipe fees. But he said he has no plans to give in to temptation.
"It's not really a goodwill gesture," he said. "It will make people quite upset."
Customers are more likely to see small retailers, which report paying 25 cents to 50 cents to process minor transactions, increasingly require a $5 minimum purchase to use a credit card, said Bill Hardekopf, CEO of LowCards.com, a consumer resource for cards.
Midnite Confection's Cupcakery, where a cupcake costs $3, added a $5 minimum for credit card customers about a year ago, said Aaron McNeil, co-owner of the Federal Hill bakery.
Many customers don't carry cash, McNeil said, but don't seem to mind the minimum purchase. They end up buying two or more cupcakes, he said.
Towson Hot Bagels hasn't established a minimum purchase, even though customers frequently use credit cards to buy bottled water that's less than $2.
"We definitely lose money more than make money," but consider that a cost of doing business and set prices accordingly, Scotto said. The business also does what it can to encourage cash payments, such as offering cash or check discounts of up to 5 percent on large catering orders.
Despite the tentative settlement between retailers and credit card industry players, they are still at odds over what it means.
Merchants say that they wanted a reduction in swipe fees and contend that the settlement does nothing to bring them under control. And the $7.25 billion deal to reimburse merchants for fees paid amounts to pennies on the dollar, the National Retail Federation said.
"The concept that retailers are going to start charging for credit card use is propaganda spread by the credit card industry to divert attention from skyrocketing swipe fees," said J. Craig Shearman, a spokesman for the trade group.
The fees drive up prices for consumers, and "now the card industry is proposing a surcharge on top of that," Shearman said. "It's not what retailers are looking for. Retailers know their customers don't want to pay a surcharge. They don't want to make customers angry by imposing one. They want fees reduced, not passed along."
But Trish Wexler, spokeswoman for the Electronic Payments Coalition, said retailers "pushed really hard for this right" to assess a surcharge during seven years of negotiating a settlement.
Even if retailers wanted to charge credit card users more, it would require some work, the retail federation said. For example, surcharges differ depending on the type of card. Merchants are required to disclose the fee on receipts, which means they would have to reprogram their registers to determine the swipe fee charged for a particular card.
Not everyone is unhappy about checkout fees, however.
Ed Mierzwinski, a consumer advocate with U.S. Public Interest Research Group, said he favors card surcharges because they give retailers some leverage to prevent swipe fees from rising rapidly. If swipe fees get too steep, he said, retailers can threaten to add a surcharge, which ultimately would cause consumers to use credit cards less and reduce the income of banks and payment networks.
Swipe fees have long been unfair to customers who pay with cash, Mierzwinski added. Retailers recover the cost of credit card processing fees by raising prices on all customers, he explained.
Banks, meanwhile, use swipe fee revenue to pay for credit card reward programs, he said. So lower-income consumers who pay with cash end up shelling out more for goods and services to finance reward programs, Mierzwinski said.
"Those are the people that need to be protected, more than somebody with an airline credit card," he said.
While merchants say they won't charge the fee, that could change.
When Australia started allowing merchants to collect such a fee in 2003, retailers were slow to do so, according to the Electronic Payments Coalition. Seven years later, nearly 30 percent of merchants charged a fee on at least one card, the group said.
It might never reach that point in Maryland, where the legislature is considering a ban on checkout fees.
Del. Kathy Szeliga, a Republican representing Baltimore and Harford counties, sponsored one of two bills in the House to prohibit such surcharges. She said this is needed to protect consumers in the event swipe fees go up, prompting merchants to pass on the costs.
If surcharges do come to Maryland, consumers can take steps to avoid the fee.
Retailers that assess the fee must post a disclosure near their entrance, at the register and on customer receipts, said Ruth Susswein, an advocate with Consumer Action. This gives card users a heads-up that they might want to shop elsewhere.
Online shoppers, however, probably won't see the disclosure until checkout, when they are far along in the process, Susswein warned.
The consumer group suggests that customers ask for a discount on the surcharge if they believe a retailer has increased the price of goods and services to cover swipe fees.
Another way to avoid the fee is to pay with cash or a debit card. But that's not easy for most consumers buying big-ticket items.
Sonny Morstein, owner of Morstein's Jewelers in Baltimore's Federal Hill neighborhood, said credit card payments account for at least three-quarters of his sales.
"You've got to be crazy to discourage that. We would never consider it," Morstein said of surcharges. "Unless everyone does it, nobody will do it."
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