In the proposed settlement of the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation case, merchants would win the ability to impose surcharges on customers who use card payments.

However, according to analysis of the proposed settlement, the ability to surcharge customers includes numerous restrictions and requirements:

• The surcharge amount will be limited by a cap established by Visa and MasterCard and by card type (debit card surcharge allowances to differ from credit card surcharge allowances)
• Merchants will be required to notify Visa and MasterCard before surcharging begins.
• Merchants post signs notifying customers that they surcharge
• Merchants must include the surcharge amount of any fee on receipts
• Merchants are not allowing a surcharge on Visa and MasterCard cardholders greater than charges to customers paying with American Express or Discover cards. For practical purposes, since AmEx prohibits surcharging, merchants would be forced to drop this payment choice.

Of course these surcharge rules will not apply in the 10 states that prohibit that practice by state law to protect consumers. The states that prohibit surcharging for credit cards include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. If more merchants implement payment type surcharges at the point of sale, we can expect consumer advocacy groups to push for even more state regulations to prevent what they will frame as gouging consumers with fees.

Then there is the question of how payment surcharge fees will hurt sales. It is argued that surcharging can cause consumers to think twice about their purchase at the checkout counter, reduces the amount of goods and services consumers will buy and lowers the average sale transaction. In highly competitive consumer markets, customers are expected to respond negatively to payment surcharges. Therefore, surcharge fees are expected to be market-driven and seen in environments where consumers have little choice but to pay them.

Merchants have long been able to offer a cash discount, pricing as an additional reward for cash carrying customers, rather than a penalty for those paying with plastic. And recent industry changes already allow merchants greater flexibility to steer their customer's payment choice.

• MasterCard and Visa Settled with Department of Justice to allow merchants more options to steer consumer payment choices
• Merchants also won Card Acceptance changes under the Dodd-Frank Act

Instead of surcharge fees, today’s best practice for implementing payment steering policies include offering a discount or benefit to encourage your preferred payment method, offer a promotion after the transaction is completed (like a credit on the billing statement or rebate) or use a separate coupon or voucher.