Are Credit Card Surcharges Hurting Small Businesses and Consumers?

February 4, 2025

Imagine going to your favorite local café, ordering a cup of coffee, and then being asked to pay a small extra charge just because you’re using your credit card. This isn’t a hypothetical situation; it’s becoming a reality for an increasing number of small businesses in the U.S. According to a recent J.D. Power survey, approximately one-third (34%) of small U.S. businesses have begun adding surcharges to credit card transactions. This shift is reshaping consumer habits and stirring debates among lawmakers.

The Rise in Surcharges

The J.D. Power survey, which gathered responses from 3,841 small businesses between August and October 2023, highlighted this growing trend. These businesses are starting to pass on interchange fees, also known as swipe fees, to their customers. These fees, charged by card networks like Visa and Mastercard, generally range from 2% to 4% of the transaction value, as noted by the National Retail Federation. The imposition of these surcharges is a significant move for small businesses but comes with wide-ranging implications.

Consumer Behavior and Satisfaction

The impact on consumer behavior is notable. A survey by LendingTree found that 73% of 1,555 credit card holders surveyed in August 2023 would reduce their credit card usage if surcharges became the norm. J.D. Power further underscored this dissatisfaction, showing a 24-point drop in customer satisfaction rates (on a 1,000-point scale) for merchants enforcing these surcharges compared to those that do not. Such a decrease in satisfaction could lead to changes in purchasing behavior, ultimately affecting the businesses’ bottom lines.

Increasing Regulatory and Political Scrutiny

Over recent years, the frequency of service fees and convenience fees has gone up, indicating a trend where merchants decide to pass these costs directly to consumers. This trend has not gone unnoticed by politicians. State and federal lawmakers are increasingly debating the legitimacy of these fees. Some states have even taken legislative measures to limit these charges. For instance, Illinois passed a law prohibiting these fees from being applied to taxes and tips, though it has faced controversy and partial restrictions. Legal battles and differing laws across states contribute to a complex regulatory environment.

Legal Challenges and Financial Institution Resistance

In December 2023, a U.S. District Court judge issued a partial preliminary injunction, limiting the scope of Illinois’s new law. The injunction applied only to state banks and credit unions while exempting national banks and federal savings associations. This situation illuminates the ongoing tension between regulatory attempts to protect consumers and the resistance from financial institutions and credit card networks striving to sustain their revenue streams. Major players like Visa and Mastercard often face criticism for exercising monopolistic control, allowing them to impose high fees without significant checks.

Summary

Picture this: you stroll into your favorite local café, order a steaming cup of coffee, and when it’s time to pay, you notice a small extra charge on your bill just because you’re paying with a credit card. This scenario isn’t just hypothetical anymore; it is turning into a commonplace practice among many small businesses across the United States. According to a recent survey by J.D. Power, about one-third (34%) of small U.S. businesses have started adding surcharges to credit card transactions. This trend is starting to shape consumer habits, forcing them to reconsider how they make payments. As this practice gains traction, it has also sparked ongoing debates among lawmakers, who are evaluating the implications for both businesses and consumers. These additional charges are intended to help small businesses cope with the fees imposed by credit card companies, but they also raise questions about fairness and transparency. As more businesses adopt this strategy, consumers might find themselves reaching for cash more often or seeking out alternative payment methods to avoid these extra costs.

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