Merchants Score a Credit Card Fee Victory

Merchants in Texas recently won a protracted legal battle that ensures they can now recover credit card processing fees. The ruling, similar to ones already legislated in California and Florida, declares “no surcharge” laws unconstitutional.

Texas merchants now have the option to pass along credit card fees to customers at the point of sale. Customers can decide whether to use a credit card and pay the processing fee, or avoid it by paying with a debit card or cash.

Fees Cost Merchants $80 Billion a Year

The controversial fees that cost merchants around 2-3 percent on every transaction have been contentious since the 1980s. At that time, Texas and other states made it illegal for merchants to tack on an additional fee when customers paid by credit card. Texas even passed a law saying that merchants who failed to abide by the rule could be hit with a $500 fine.

Merchants wanted to use the zero fee tactic to recoup the fees they were forced to pay, by effectively passing credit card fees along to consumers. These credit-card interchange fees cost U.S. merchants approximately $80 billion per year.

How Fees Harm Both Merchants and Consumers

As banks profit by charging lucrative interchange fees, they are able to reinvest those profits to subsidize credit card rewards programs. By offering more types of rewards cards, banks gain a greater market share by attracting more credit card customers.

Meanwhile, consumers are powerfully incentivized to pay with credit cards because they are rewarded for doing so. But merchants are penalized, and some consumer advocates argue that the fees charged to merchants ultimately hurt the consumer. 

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An Invisible Inflationary Tax

That’s because merchants feel compelled to raise the prices of goods and services in order to compensate for revenues lost through interchange fees. The consumer winds up paying more in the end, due to this kind of inflationary cycle that basically only benefits credit card companies. Many experts see credit card interchange fees as an invisible tax charged by banks and unwittingly paid by consumers.

The Free Speech Argument

The legal battles over the fees, in fact, have been won based on an unusual free speech argument. Merchants said that credit card companies did not permit them to disclose the fees to customers, and inform customers of fee-free alternative ways to pay. They argued that such censorship violated their constitutional right to free speech.

In cases that were won, the courts agreed that the constitutional argument was valid. Now that the momentum has swung in favor of allowing merchants to add a surcharge to credit card sales, the likelihood that all 50 states will allow surcharging has increased significantly.

Zero Fee Credit Made Easy

To facilitate the process of Zero Fee Credit, NTC Texas  – offers a turnkey solution that ensures that merchants receive 100 percent of every credit card sale with zero cost. NTC Texas automatically passes the fee on to the consumer, unless the consumer chooses to use a cash or debit card option.

NTC Texas even provides retail signage to inform consumers of their options. The system is fully compliant with financial industry regulations and contractual rules mandated by credit card companies, making the whole process easy for merchants. With more states legalizing zero fee policies, this kind of solution is naturally gaining in popularity among the merchant community.