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By Herb Weisbaum ConsumerMan
msnbc.com contributor
updated 7/17/2006 7:22:55 PM ET 2006-07-17T23:22:55

Banks and credit card companies like to say that plastic is better than paper money. But when’s the last time you were charged a service fee for using cash? From what MSNBC readers tell me, they’re frequently charged extra for using their cards —  particularly debit cards — and they don’t like getting socked with these fees.

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There is no federal regulation that prohibits a merchant from charging a fee for using a credit or debit card, although some states outlaw these surcharges.

According to Americans for Consumer Education and Competition (a group partially funded by Visa), states that prohibit all surcharges are: California, Colorado, Connecticut, Florida, Kansas, Maine, New York, Oklahoma, and Texas.

But even where a surcharge is legal, it’s generally a violation of Visa and MasterCard’s rules for a store to tack on a surcharge for their credit or debit cards. They define a surcharge as any fee that is charged for using the card that is not charged when another payment method is used. (Note: This rule does not apply when you pay your federal income tax with plastic.)

Here’s a heads up for anyone with a Discover card — merchants are allowed to pass along the cost of processing your transaction in the form of a surcharge. Discover dropped it’s “no surcharge” rule back in February, after negotiations with lawyers suing the major credit card companies. That federal antitrust suit was filed by a group of merchants who claim they are forced to raise prices because they cannot pass along the processing fees to cardholders. After agreeing to allow surcharges for its credit card and new debit card, Discover was dropped from that suit.

Read on — because as I’ve learned researching this story — when it comes to credit and debit cards, nothing is as simple as it first seems.

ARCO stations do not accept credit cards at all and charges $.45 cents for using a debit card. Can they do that?
— Jeanette J., San Pablo, Calif.

Yes. It has to do with the way ARCO handles these transactions. If a merchant uses the Visa or MasterCard network to process a PIN-based debit card payment (where you don’t sign the receipt) they cannot add a surcharge. But, if he merchant uses some other PIN-debit network, the Visa and MasterCard rules don’t apply.

ARCO only accepts pin-based debit cards, and they don’t use the Visa or MasterCard networks to process these payments, so it is not bound to follow the “no-surcharge” rules.

Phil Cochran, an ARCO spokesman, points out that the service fee is noted on all ARCO point-of-sale devices. Why do they make customers pay to use their debit card? Cochran says it’s a way to keep costs down, “because the banks keep charging more” to process debit card payments.

A number of MSNBC readers wrote me about debit fees charged at fast food restaurants, particularly McDonald’s. Gina Pfeifer, McDonald’s Vice President for Business Integration, says most of the company’s 13,700 restaurants in the U.S. now use “a standard integrated cashless payment system that does not assess a debit or credit card fee.” There are “a very small number of restaurants” that are not currently operating on this integrated system, she says, “and we hope to have the majority of these restaurants converted in the future.”

Bottom line: it’s a real challenge for consumers to know for sure if a merchant is allowed to charge a debit card fee.

I filled up my car at a local gas station, using the pre-pay only pump. Without my knowledge or consent, the gas station charged $100.00 on my debit card, even though my total gas purchase price was $22.47. The gas station tells me it is “standard” practice to over-ring a prepay sale such as mine, even to the amount of $100.00.
— Susan M., Minneapolis, Minn.

It is common practice for gas stations to put a “hold” of $75 to $100 dollars on debit cards, in order to make sure they get paid for what you pump. According to Gerri Detweiler, author of “The Ultimate Credit Handbook,” the station actually puts the hold on your card first and then charges your debit card for the actual transaction. “But the hold isn’t always released immediately,” she explains, “so this can tie up those funds for as much as 72 hours.”

The money that’s “on hold” is still in your checking account; you just don’t have access to it, which could result in checks bouncing. That’s why you need to be careful if you use your debit card at a gas station or hotel when you have very little money in your checking account.

Yes, hotels also put blocks — much bigger ones — on debit cards. That’s why I tell people not to use a debit card when checking in, even if you plan to pay with one when you check out. Let them take an impression of your credit card at registration. Any hold will be placed on the credit card, which shouldn’t matter to you unless you are near your limit. When it comes time to pay the bill, tell them to put it on your debit card.

Lessons learned
I’ve learned a great deal researching the rules about credit and debit cards. There is never a simple answer to any question — there are always exceptions. This is not only confusing to consumers; it’s confusing to merchants and bank employees. Even some public relations people at the credit card companies aren’t always sure what is allowed and what’s prohibited.

In my opinion, the rules need to be simplified and exclusions need to be eliminated, so everyone understands them, especially people working credit card customer service lines.  I’ve heard from too many MSNBC readers who’ve been given erroneous information when they’ve called ask a question about the rules.

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