Have you ever been to a convenience store and seen a handwritten note attached to the credit card processor that says something like, ‘Cash only for purchases under $5?’
Credit card companies, specifically Visa and Mastercard, charge stores increasingly exorbitant fees for processing credit card transactions. And recently, some businesses have been itemizing those fees on customers’ bills, passing them along in an explicit way.
Those fees are high enough that they sometimes outstrip your credit card rewards rate. So how should you pay for transactions if that’s the case?
That’s what a listener of the Clark Howard Podcast recently asked.
How Should I Pay If Businesses Are Passing Along Credit Card Processing Fees To Customers?
Clark famously says you should never use a debit card. You don’t get the same consumer protections with a debit card that you do with a credit card.
That’s not even considering the cash back you can get from the best rewards credit cards, effectively giving you a small discount on purchases.
But what if you get charged considerably more for paying with a credit card? That’s what a listener asked on the June 21 podcast episode.
Asked Mike in Ohio: “More businesses are now passing along to the customer the 3%+ fee that the credit card companies are charging [for transactions]. I’ve run into this recently when going to the dentist, paying for a car repair and again when buying tires.
“I know you discourage the use of checks, but short of carrying a large amount of cash, what are a consumer’s options?”
Clark “supports fully the dentist, car repair place, tire store, restaurants, wherever” in charging a stated fee for using credit cards. Because it’s such a huge expense for them and erodes their profits. He puts the blame elsewhere.
“In the United States, the Visa and Mastercard cartel has been able to price-fix [high] fees for taking credit cards,” Clark says. “So our merchant fees in the United States are way higher than they are anywhere else that I know of in the world.
“This is one of the problems with modern capitalism in the United States. Lobbyists are able to spread money around Capital Hill and have laws that are to their liking to the harm of the free market and the harm of the American people. The Visa and Mastercard cartel are an enormous problem.”
Mike’s Dilemma: Cash vs. Debit Card vs. Credit Card Processing Fee
So how should you pay?
You have imperfect options in the circumstances Mike described: carry around a giant wad of cash, pay with a debit card or continue to use a credit card.
“So then you and I have a choice to make,” Clark says. “Do we want to use the plastic? Or do we want to pay some other way? [Mike] brought up a very interesting point. You don’t want to carry a large amount of cash.”
That narrows your choices. When you pay with a debit card, your protections are more limited. With a credit card, you’re stuck paying extra money in the situation Mike described.
“We’re back to having to potentially use the piece-of-trash fake Visa or Mastercard – a debit card,” Clark says. “In this case, you’re choosing to save 3% for the possibility that something will go wrong using that debit card.
“And I’m going to leave that to you to make that decision because carrying a big wad of cash is not the safest thing in the world.”
Remember that if you’re paying with a 2% cash back rewards card, you’re getting a healthy percentage of the fee back into your pocket.
You can decide for yourself whether that’s enough to stick with your credit card or whether you’d rather accept whatever level of risk comes with a debit card transaction.
Some companies roll the cost of credit card processing fees into everyone’s bill simply by baking in enough profit to cover those fees.
However, if the merchant with which you’re shopping is passing along a 3%+ fee from Visa or Mastercard to you, you’ll have to decide how you feel comfortable paying.
Use a debit card and you severely limit your protections if something goes wrong. Cash may work well if you’re able to avoid carrying around a large amount. And a credit card may still be your best option, especially if it’s a rewards card and the fee you’re getting charged is fairly low.
The fees that the credit card companies charge are a source of major frustration for Clark.
“You know, the actual cost of processing that credit card is virtually nothing. It is a tiny, tiny cost to the credit card companies,” Clark says.
“And only because of the cartel that exists in the United States with the price fixing on fees has it been possible for the banks to commit what I call reverse bank robbery and charge these massive expenses on the backs of retailers and restaurants and in your case the dentist.”