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How Much Does It Cost Businesses To Allow Credit and Debit Card Payments?

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Image courtesy of hin255 /

Imagine going through a fast food drive through, and seeing a sign stating that you will be charged a service fee for each order. If that wasn’t odd enough, the sign goes on to say that your $0.39 will be refunded if you pay with credit card, cash, or gift card. That’s exactly what a long time EOD reader reported to me via email recently, and after some internet searching I found that a company that owns 20 Taco Bell and KFC restaurants across the Midwest has indeed implemented this policy. If you were reading carefully, you should have come to the same conclusion the reader did.

The only method of payment that will cost you the $0.39 service fee is using your debit card.

This policy had me scratching my head. I knew merchants had to pay a fee for each transaction made with a debit or credit card,  but I didn’t know how much.  So,  I decided to do  some investigation hoping to uncover something that would explain why these restaurants would charge customers extra for using a debit card.

Credit Card Fee:

  • Discount Fee: A fee of around 2% of the purchase price. This is the fee charged by the credit card issuer for the privilege of offering credit cards as a method of payment. It’s one of the ways that credit card issuers make money from their product.
  • Transaction Fee: A fee of between 15 and 75 cents is charged to obtain permission to deposit the money into the merchant’s account.

Debit Card Fee:

  • With the current regulations that went into effect in 2011. debit card transaction fees are capped at 21 cents plus 0.05% of the purchase price.

With that information, let’s calculate the potential fee difference for a $10 fast food purchase:

  • Credit Card: 2% of transaction ($0.20) + Transaction Fee (let’s use $0.50) = $0.70.
  • Debit Card: $0.21 + 0.05% ($0.01 rounded UP) = $0.22.

On the surface it would appear that the use of a credit card at a fast food restaurant would be far more expensive for the merchant. However, I did find this gem in one of the articles I dug up regarding debit card transaction fees:

“The rule exempts financial institutions with less than $10 billion in assets from the debit interchange fee limits.”

I wonder if there’s smaller banking institution in the region of the country where these restaurants are located that a high percentage of the population happens to use. If the banking institution was except from the debit card interchange fee limits, they could be charging a much higher rate resulting in debit card usage being more expensive.

Whatever the reason they implemented this policy, it may be illegal.

One of the restaurant owners explained that new regulations that took effect at the beginning of the year which allows them to do this. This is untrue. In fact, the current laws state that merchants can indeed impose a surcharge of up to 4%, but ONLY when the method of payment is a credit card. Merchants have this option, but in practice, it’s just not done. Customers would simply walk out and take their business somewhere else that did not impose a surcharge.

I’m guessing it won’t take long before some government regulatory agency catches wind of what’s going on and shuts it down. But in the mean time, if you run across a merchant that tries to push a service charge on you for using your debit card, put your plastic back in your wallet, and kindly tell them you’ll be reporting them.

The good news is there’s a simple way you can guarantee yourself to never have to worry about the math above, or any kind of inconvenience of paying surcharges for using a particular form of payment; Pay Cash.

Cash is King. Always has been, and always will be.

Have you ever been charged a surcharge for using any kind of method of payment?

Category: Bank

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