A 4% Surcharge for Using a Credit Card?! Now Legal — but Not Likely

January 28, 2013 by TIME Business & Money

Starting on Sunday, Jan. 27, retailers will be allowed to tack a surcharge of up to 4% onto your tab if you want to pay with a credit card. If that sounds like a lot, you’re right. Happily, though, it’s unlikely to happen very often.

For years, card issuers have been making lots of money off so-called interchange fees. Until financial regulators and lawyers dragged this obscure term into general discourse, most people had no idea what an interchange fee is. (Still don’t? It’s the fee, typically about 2%, that a store pays your bank when you use a credit card at checkout.) For low-margin businesses like supermarkets as well as mom-and-pop stores that don’t have the clout of their big-box brethren to negotiate lower rates, these fees cut into profits in a big way.

But in a contentious legal ruling that is still being disputed, a U.S. District Court determined last year that merchants are allowed to pass along the cost of those credit-card interchange fees to customers. Consumer advocates say permitting surcharges is a slippery slope. ”If a national sales tax of 2, 3, or 4 percent were being proposed, everyone would be up in arms,” ConsumerWorld.org founder Edgar Dworksy points out on his site.

But take a deep breath. You can avoid the fee by using a debit card, for one thing. And there are laws prohibiting these surcharges in 10 states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Ultimately, though, consumer awareness will be the strongest deterrent against widespread credit-card surcharges. Stores have to let you know with a sign on the door if they’re going to add a surcharge — although they don’t have to tell you how much it is until point of sale, when you’re already at the cash register. And today’s retail landscape is hypercompetitive, so many stores will be hesitant to risk alienating customers by charging extra for using plastic.