What You Need To Know About the New Credit Card Surcharge Fee

Going shopping and paying for your items with a credit card? As of January 27, you might have to pay an extra “surcharge fee” that consumers who pay with debit cards, prepaid cards and cash don’t.

Legal in 40 states, the new fee stems from a multi-billion anti-trust settlement announced in July between credit card issuers and retailers. Visa, Mastercard and nine major banks agreed to pay $7.25 billion to settle charges that they were fixing the credit card processing fees that merchants have to pay to the credit card companies.

As part of the settlement, the merchants are now able to pass their credit card acceptance fees onto consumers, which usually range from 1.5 percent to 3 percent of the purchase price. While it is up to each individual business to decide if they want to add a fee, the business does need to disclose it to consumers.

What does this mean for you?
The fee is still in its infancy and retailers are trying to find the delicate balance between passing the fee along to consumers and potentially losing business because consumers choose to shop in other locations that don’t charge the fee.

As of right now, the fee is illegal to charge in 10 states, so if you live in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma or Texas, you only have to worry about the new charge if your purchasing an item from another state or shopping online.

If you live in one of the 40 states where the fee is legal and you’re worried about its impact on your budget, consider alternative payment methods or make sure your credit card rewards offset the fee.

Should you give up credit cards completely?
Not necessarily. Credit cards have a lot of soft perks that debit cards and cash don’t. For example, when it comes to credit cards, you have greater financial protection. If someone steals your debit card number, they can quickly drain your bank account. If they get a hold of your credit card number and you report it right away, you’re not on the hook for everything they spent. Other credit card perks include roadside assistance, insurance when you rent a car and more protections in place when it comes to disputing charges.

On top of the soft perks, not every merchant will decide to charge the fee, so if you select your retailers carefully, you can avoid the fee altogether. If you already earn rewards, for every dollar you spend, it could pay off if you play it right.

For example, let’s say you spend $2,500 a month on average and you were charged a fee on half of your balance by various retailers. This would add an additional $12-$38 to your monthly credit card bill each month. If you’re only earning 1 percent cash back and the retailers are charging you a 2-3 percent fee, it might be worth it to switch to an alternative payment method to save money. However, if you have a credit card where you earn 5 percent cash back in certain categories, then your rewards could offset the cost, leaving you anywhere from 2-4 percent ahead.

How to avoid the fee
• Pay cash
• Pay with your debit card
• Use a prepaid card or a gift card
• Only shop at retailers who don’t charge the fee

We’ll be following the developments closely at Credit Sesame. Eventually it will become clear which retailers will be charging this.

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