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Why We Need Surcharges on Credit Card Transactions

I've learned about credit cards recently and I've found something disturbing. gasp Credit card companies are taking advantage of people! But seriously, we can help stop it.

Visa and Mastercard recently settled a lawsuit; now merchants are allowed to surcharge credit card paying customers. Before they were not.

A surcharge on credit card purchases would help right a present injustice. Consumers are given an incentive to shop with rewards cards. In fact, rewards cards make up around 50% of visa purchases (citation needed). This means that a merchant makes about 3% less on those purchases. In order to make up that 3% loss, the merchant has to raise prices on goods. Now people who pay with debit, check or cash (and don't get frequent flier milers) are subsidizing those making "free" flights to Hawaii. But most rewards cards only give about 1% back to the consumer. The consumer is tricked into thinking they got a good deal, when in fact they paid more than 1% in the first place for the right to use their credit card. In the meantime, the issuing bank of the credit card, the card companies, and the processor have taken about 2% out of each transaction.

Visa makes 1 billion dollar gross profits quarterly. And Department Stores care more about signing you up for a credit card than customer service because issuing banks take over 1% from each deal.

That ~3% is money that is coming out of consumer's and merchant's pockets. And a 3% surcharge on credit card users could right this wrong. However placing a surcharge on credit card purchases is illegal in California, see California Civil Code Section 1748.1 and in at least 9 other states: Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

If you live in one of these states, contact your local legislator(s) and ask that they make it legal to add a surcharge to credit card purchases.

My hope is that we can reduce the amount of money that is being drained from all of us by parasitic credit card companies. Instead, debit card or new electronic transfers have the potential to be cheaper because without a lender or debtor there is less risk.


The problem with cutting out a lender you lost fraud protection. Credit Card companies are much easier to work with if there is fraudulent activity on your account because it's their money that was spent. You pay off the debt incurred.

With debit that comes directly out of your pocket and if someone steals it there are less options on getting it back. It's why you're suppose to only use credit cards online and not your debit card.

Granted ~3% is a lot, and should be reduced or just eliminated and the consumer pays for the card via an annual fee, like with Amex.

But shouldn't the credit-card user be the one paying for that fraud protection, instead of everyone else?

In Europe, credit cards are supposedly more secure (because of an embedded EMV chip) and they cost ~0.3% per transaction instead of our ~3%. So it seems like we could reduce the cost of fraud by increasing security. This is something the credit card companies haven't cared about doing because the fraudulent transactions are so small compared to the legit transactions.

And guess who owns the debit networks? Discover owns Pulse, First Data (CC processor) owns Star, and Visa owns Interlink. Maybe there hasn't been a lot of incentive to reduce fraud in the debit networks either.