Why paying with cash may not save you from credit card fees


You’ve been through the drill a million times: The cashier rings up your item and asks you the question: “Are you paying with cash or card?” You pull out a wad of cash, pay for the goods and go on your merry way.

But what you may not realize is that along with the item’s sticker price, you may have also shouldered the cost of a credit card fee — even though you handed over greenbacks.

Here’s why cash-payers are being impacted by credit card fees

To get into how cash-payers may be impacted by credit card fees, we have to back up a bit and explain the charges associated with the credit card business. Up until recent years, retailers would typically bear the brunt of myriad credit card fees, including interchange and assessment charges.

These credit card fees and other charges average about 2% per purchase, but can be as much as 4%, depending on the network. Retailers utilize card processing networks (such as Mastercard, Visa, American Express, etc.) to facilitate all such transactions for them because they have the trusted infrastructure and banking system already in place.

In addition to having a relationship with the card networks, retailers must also sign up with a merchant services provider, which handles the actual transaction process and manages the transferring of money.

Instead of eating all those costs, merchants are now passing those down to the consumer. Now, you’d think cash-payers would avoid any such charges associated with cards, but a report by Motley Fool says that those who pay in paper dollars are still being impacted by interchange fees, an amount paid between banks for the privilege of accepting credit card payments.

“Most retailers incorporate their average interchange fee into their prices,” this Motleyfool.com article says.” So if the merchant pays an average 2% interchange fee and half of its customers use cards to pay, it’ll increase its prices by an average of around 1%.”

Here’s the thing: Most businesses obviously aren’t going to tell you that they are bumping prices up across the board because of credit card fees, but if you look around, you can see how it happens.

Many gas stations already employ this practice; you’ll see one price for unleaded fuel in big bold signage, but they’ll display another, higher price for what it costs if you pay using credit. The surcharge is typically 5 to 10 per gallon, according to the National Association of Convenience Stores.

In many cities, credit card prices are much higher. There have been reports of gas stations charging card customers as much as $1 more a gallon.


While some states have no rules whatsoever on credit card fees, 11 have put laws in place in recent years that restrict businesses from tacking on surcharges to credit card customers, according to the National Federation of Independent Business.

“Cash discounts,” though, often are opaque to consumers, making it easier for companies to leak card processing fees into overall store prices, something that was predicted years ago when these regulations started going into effect.

“A lot of merchants will consider it a cost of doing business and will raise all their prices,” said Linda Sherry, a spokeswoman for the advocacy group Consumer Action told the L.A Times in 2012. “Consumers won’t know if this is for the processing fees or not.”

So, the next time you swipe to buy an item, either look for a notice at the checkout station or take a gander at the receipt to see exactly how much you’re being charged for paying via credit card. By law, companies that charge consumers for credit card usage must provide fee disclosures at the point of sale — and this includes online merchants.

Common Cents: The pros and cons of a credit card

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