What local customers can do about credit card surcharges

This article originally appeared in the Friday July 5, 2019 issue of the Progress Times.

With nearly one-third of Americans using credit cards every day, chances are credit card users in Texas may have noticed additional charges on their credit card in the last year.

Last summer, a federal judge in Austin ruled that the state law prohibiting merchants from charging customers a surcharge to cover the cost of the credit card swipe was unconstitutional. This, in effect, allowed businesses to charge customers up to four percent for use of a credit card.

“It’s a court battle in many states right now, not just in Texas, that are battling the issue of credit card surcharges,” Ahmed Elnahas, a finance professor at The University of Texas-Rio Grande Valley said. “A lot of states such as Texas, California, New York and Florida had these bans against surcharges that were ultimately turned over by their state high court. We could see something where within a few years, all 50 states will allow credit card surcharges.”

The surcharge ban was overturned after opponents argued that the law violated the first amendment of the U.S. Constitution because it prevented merchants from letting customers know about the swipe fee that credit card companies charge for each transaction and how using plastic instead of cash ultimately leads to higher costs for the products and services being bought.

These surcharges, according to Elnahas, cover the “swipe fee” merchants are charged by the credit card companies for using a credit card machine to complete a purchase.

These swipe fees are typically two to three percent of a purchase and Elnahas said merchants typically charge to customers either the swipe fee or the four percent maximum, depending on which fee is lower from the total.

“However, the merchant has to clearly state with a sign or vocally tell their customers ‘Hey, there is a surcharge of two or three percent of your purchase if you use your credit card,’” Elnahas said. “This has to be clear on the point of purchase and it has to be disclosed on the receipt itself. Some businesses will do this with a little sign near the front…but that’s the equivalent of buying a new computer and skipping the long user agreement terms of purchase. No one is going to read that.”

The Progress Times went to several different establishments in the Mission, McAllen and Edinburg area and observed multiple business-most of them restaurants-that had surcharges. These businesses (see table) notified customers of surcharges via signs near the cash register but did not verbally disclose the surcharges to customers prior to paying unless they were asked about it.

STRENGTH IN CONSUMERS
According to a June 2018 CNBC article, 29.5 percent of Americans use a credit card while 48 percent of consumers use a debit card. Eight percent of consumers use cash.

Adding to the confusion of swipe fees, Elnahas said, is that most businesses already charge a “convenience fee” for those who pay with a debit card as opposed to a credit card.

A convenience fee, Elnahas explained, covers the “swipe fee” for debit cards but whereas the fee for credit cards is at a percentage that varies per purchase, a convenience fee is a flat rate amount in dollars.

“So debit card users can be charged $1, $2 or $3 no matter how big the purchase is but it always stays at that fixed number,” Elnahas said. “Like a credit card surcharge, it’s legal but it’s also another way that merchants pass the burden of the swipe fees from their shoulders to their customers.”

Customers who notice a violation, such as a surcharge higher than four percent on their credit card purchase, not being notified of the surcharge at the time of purchase or noticing a debit card transaction receiving a credit card surcharge, are urged to report it either to their credit card companies or to the Texas Attorney General’s Office for a possible refund.

“We should report all violations no matter how minor,” Elnahas said. “Some violations are a small amount usually, but those small amounts accumulate. So for our own good, we should report these violations so that these businesses know that their customers are keeping them in line.”

Most businesses that charge surcharges or convenience fees are small, local businesses as big chain businesses usually cover those fees themselves, Elnahas said. Should customers feel like they are being cheated with surcharges, Elnahas said customers can let the businesses know with their wallet.

“They can take their business elsewhere and find one that doesn’t have these charges,” Elnahas said. “People need to ask if there’s a fee upfront. With more and more merchants using surcharges, I think that customers are better off having the power in their hands. They have a leverage over merchants and credit card companies and that leverage is: they have the option of using either a debit card, credit card or cash or switching to a different merchant. They should use that leverage.”

Despite the surcharges, Elnahas says he understands why most businesses use them. While businesses can choose to not have credit card surcharges, the burden of the swipe fee is placed on the merchants, which eat into their profits.

“So to some degree it is fair for them to try to keep most of their profit margins by passing that fee to customers through the surcharge fees,” he said. “However, consumers should still watch out for excessive fees on their receipts. Should merchants decide to not use surcharges, then you can help those businesses by paying in cash or with a debit card so they won’t be hit with a hefty swipe fee.”

Some local businesses we’ve encountered with credit card surcharges:
• La Fruteria
o 1410 N Conway Ave, Mission
• La Herradura Taqueria
o 6613 S Jackson Rd, Pharr,
• Zamoras’ Restaurant
o Multiple locations
• Taco Ole
o Multiple locations
• Margaritas Mexican Grill and Cantina
o 3505 TX-107, Edinburg