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Court settlement expected to clear way for credit card surcharges in NY

Experts say that retailers may avoid passing along fees to shoppers, at least initially.

Merchants in New York State would be cleared

Merchants in New York State would be cleared to add credit card swipe fees to the price of goods if a long-running court case that was tentatively settled last week is given final approval by the court. Photo Credit: Getty Images/fotostorm

Merchants in New York State will be cleared to add credit card surcharges to the price of goods after a long-running court case reached a tentative settlement last week, industry experts said.

Whether they will do so, and risk turning off shoppers, is still unclear, they added.

Retailers typically pay an average of about 2 percent of transaction value in so-called swipe fees to credit card companies, according to the National Retail Federation, which estimates those fees total $80 billion a year nationwide. It has been illegal to pass these fees along to customers as a surcharge.

The settlement, which is expected to receive final approval from the U.S. Circuit Court of Appeals in Manhattan, would let New York retailers pass those surcharges on to consumers as long as the additional fees are disclosed in terms of dollars and cents.

Previous surcharge bans had been struck down in California, Florida and Texas.

Experts were split on the impact of the New York settlement.

Rather than impose the surcharge on customers, J. Craig Shearman, vice president, government relations and public affairs, of the National Retail Federation, said retailers likely will use the settlement as leverage in a campaign to lower swipe fees.

"The retail industry as a whole has no interest in surcharging," he said.

That view was echoed by Ted Rossman, industry analyst at CreditCards.com.

"Most retailers will not implement credit card surcharges, even though New York State law will soon allow them," he said in an email. "That's because retailers won't want to do anything to put a sale at risk."

Lori Belmonte, co-owner of Colony Shop, a children's clothing store in Patchogue, agreed that retailers would fear alienating customers by passing on the surcharge.

Instead, Belmonte said, she would continue absorbing the credit card fees as part of the total transaction.

"I do it now," she said. "I'd just continue doing that."

But Jonathan Razi, CEO of Chicago-based CardX LLC, which automates compliance of credit-card surcharging rules, said that once all 50 states permitted retailers to pass on swipe fees, it would "trigger a seismic shift."

In an email, Razi envisioned a pricing model like Australia's, where he said 42 percent of merchants pass along credit card swipe fees.

The New York State case dates to 2013, when Expressions Hair Design, a salon in upstate Vestal, and other retailers challenged the state law banning credit card surcharges.

The law, however, allowed discounts for cash, such as those offered by some gas stations.

The case went as high as the U.S. Supreme Court before landing back at the New York State Court of Appeals.

The New York State Attorney General's Office, which had argued in favor of the law imposing the credit card surcharge ban, did not respond to requests for comment.

Deepak Gupta, a Washington, D.C., lawyer for the merchants challenging the law, also did not respond to requests for comment.

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