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Credit Pact Lays New Charges on Consumers

By Chuck Jaffe, MarketWatch BOSTON (MarketWatch)--Consumers should not get too excited about the $7 billion settlement between the big credit-card companies and retailers. Chances are they'll be forced to pick up the tab. The card settlement that MasterCard Inc. (MA), Visa Inc. (V) and some large banks reached with retailers recently--which still awaits a judge's approval--will require the biggest card issuers to pony up $7.25 billion in penalties and payment fees to retailers who claimed that the fix was in on the charges applied to each credit-card transaction, known as swipe fees. Those swipe fees--which can run anywhere from 1% to 5% per transaction--were set by the card companies. Visa and MasterCard never have allowed retailers to get in on the fee action, and never had incentive to keep them low. That's not really changing. What is changing is that now retailers can add surcharges if you use plastic for purchases. But that's no big deal for the card giants. They recognize that the public is so addicted to plastic, it's not going to quit now. Plastic no-no That's why consumers should start thinking about changing their behaviors. The likelihood is that retailers will start charging fees on credit transactions--and possibly leaving debit-cards alone--about as soon as the floodgates open. They'll do it in a way that feels like many gas stations, where there is one price for using cash and another for using credit. Public perception of the fees could go a long way to how the situation plays out. Less than a year ago, public outcry over debit-card fees being raised and levied by Bank of America (BAC) and others led bankers to abandon that plan. That said, banks generate lucrative fees from users of automated-teller machines. If many consumers find it too bothersome to stay inside their bank's ATM network and avoid fees, they're not going to change their shopping habits just because they get a little financial slap on their way out. Businesses don't necessarily want a return to cash either. Cash transactions can be cumbersome. But if they can cover the swipe-fee costs by passing them on with slightly higher prices--and then offer a "deal" by allowing customers who pay cash to avoid the higher costs created by swipe fees--expect them to do so. Still, a lot has to play out before this change becomes reality. One significant issue involves payment services such as PayPal, where many observers believe the settlement agreement basically forces retailers to either implement a surcharge or stop using the services. Card games Meanwhile, consumers should get an early jump on understanding this situation. "What we know right now is that no matter how this plays out, savvy consumers aren't going to stand for paying fees and surcharges and they will figure out a better alternative," said Greg McBride, senior financial analyst for "Then there are people who are sloppy with their finances, who don't worry about these things or don't think they add up, and they will wind up paying for this big-time." The simple solution is sticking with cash, of course, but that doesn't work for everyone or at all times. So consumers should examine their shopping behavior, and look for ways to reduce or avoid fees. Most consumers who rely on bank cards for cash long ago recognized the importance of having a bank close to where they live, work and shop, so they can avoid fees they might otherwise pay on ATM withdrawals. Examine how fees are piling up, and look at your spending patterns to see how surcharges could apply to you. Charges like these can sneak up on consumers, who are often unaware of new rules that affect them. So be aware when the fallout of this $7 billion settlement materializes. It's a big bill; the less you pay for it, the better. -Chuck Jaffe; 415-439-6400; [email protected] Subscribe to WSJ:

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