States Consider Bans on Credit Card Fees

States Consider Bans on Credit Card Fees

Credit or debit?

The trademark phrase of cashiers across the nation has become the subject for debate in state legislatures, as banks battle it out with retailers to squash surcharges for paying with credit instead of with debit or cash.

While issuers generally receive 1 to 3% of what the consumer pays for each item using his or her card, retailers have to shell out more to banks when their customers pay with credit.


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As a result, retailers often charge consumers more when they don't pay with debit or cash as a disincentive for credit purchases, much to the chagrin of the banks that make about $40 billion annually off of credit-card swipe fees.

Some argue that the surcharges stifle consumers' right to choose their payment method. Utah has already made them illegal, and the American Bankers Association reports that about 20 states in total are debating similar legislation.

But consumer advocacy groups such as the U.S. Public Interest Research Group say the surcharges help keep credit-card swipe fees from getting out of hand, ultimately protecting consumers.

The battle originally began 10 years ago, between retail giants such as Home Depot, Wal-Mart and Target and banking bigwigs J.P. Morgan Chase, Visa and Mastercard, Bloomberg reports.

Under the 2010 Dodd-Frank law, there is a limit on the amount banks can charge for debit card fees, but no such cap for credit card fees.

In January, the ruling in a class-action settlement allowed retailers to continue to charge more for credit purchases in states where it wasn't already banned.

But even in states where laws have prevented surcharges, retailers can still legally offer discounts on to consumers who buy with debit or cash—for advocates of the bans, they see the policy as a sneaky way to sidestep the law.

RELATED: Are Bank Fees Killing the Economy? 


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