August 31, 2012

Retailer Surcharges Would Dampen Credit Card Use

AUSTIN, Texas -- A proposed swipe fee settlement would give retailers the green light to charge consumers a surcharge for using a credit card, but a new poll suggests that consumers will not graciously accept the extra charge.

According to a new poll by CreditCards.com, nearly two in three Americans -- 65 percent -- said they would stop using their credit cards if retailers start adding extra fees to credit card purchases -- regardless of how small that fee may be.

The extra surcharge has been prohibited by Visa Inc. and MasterCard. However, a deal now on the table to settle a 2005 class-action lawsuit would allow retailers to implement a surcharge, possibly in early 2013, to help recoup the swipe fees (also known as interchange fees) they have to pay every time a customer pays with a credit card, according to CreditCards.com.

As CSNews Online reported two weeks ago, the plaintiffs in the class-action suit have until Oct. 19 to accept the proposed settlement. According to the terms of the settlement, retailers can charge customers no more than the amount of the swipe fee, which typically ranges from 1.5 percent to 3 percent of the purchase.

When asked in the CreditCards.com survey if they were willing to pay a surcharge in that range -- 2 percent -- Americans said "no way." On the flip side, only 2 percent of Americans would be willing to pay a fee that was capped at 2 percent of the purchase price. The scientific telephone survey of 1,005 adults was conducted Aug. 3-5 by GfK Roper Custom Research North America using random digit dialing.

The CreditCards.com poll indicates that those least likely to flinch at paying a surcharge are those under age 35. In the survey, the younger the respondent, the less willing they were to stop using their card, the company reported. Only about half of 18- to 34-year-olds would use a different payment method to avoid a fee (52 percent), compared to 63 percent of those age 35 to 49, and more than seven in 10 of those older than 50.

Also, one in four in the younger group said they would pay up to $1 extra to use plastic, while only 13 percent of those over age 65 were willing, the poll found.

"It's a lot easier to say you won't pay a fee in a telephone survey than it is to actually follow through when you're standing at the checkout and you realize you don't have cash," said Larry Compeau, a professor of consumer behavior at Clarkson University. "I do think a certain percentage of people will refuse to pay, but what's more important is that the people in the poll are sending a clear message to retailers: Don't pull this on me."

With so many respondents giving the thumbs down to any potential surcharge, retailers may decide against implementing a fee or consider the cash discount system used by some gas stations, added Ken Manning, a marketing professor at Colorado State University.

"I suspect surcharges to emerge mostly in situations where there's a lot of price sensitivity, where consumers really compare prices. There would be pressure on the retailers to lower their prices on the shelf and then you would pay a surcharge only if you paid with a card," he said.

Compeau noted that he thinks it's unlikely that large retailers and chains will hit up customers because they can easily absorb the cost of the swipe fees.

The CreditCards.com poll also found that the groups who say they use credit cards always or frequently for retail purchases were more likely to report they would stop using their cards when faced with a fee. In addition, about 42 percent of respondents earning $30,000 to $39,900 a year said they'd stop using a credit card if they saw a surcharge compared to 71 percent of respondents making $75,000 a year or more

www.csnews.com

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