Your Finance: Surcharges on credit?

Cash or credit?

That is a familiar choice at the gas pump, with a cheaper price for cash payments and a higher one for credit-card purchases. But will this fly at a grocery store, hotel or other retail outpost?

Visa Inc. and MasterCard Inc.'s proposed $7.25-billion settlement with retailers over swipe fees, which the credit-card companies charge to process payments, could lead to a two-tiered payment system for a host of transactions, analysts say.

The agreement, announced earlier this month, allows retailers to collectively bargain on future swipe fees, which are also known as interchange rates. It also opens up the possibility that more retailers can add surcharges for credit-card transactions, although they would have to explain them to consumers in clear, concise language.

One important note for New Yorkers: If the extra fee winds up as a "surcharge," it would be illegal in New York State. If merchants opt for other ways to pass on the expense, such as adding it to the price, the extra charge could be allowable here, sources say. The settlement isn't a done deal, and what form the new charge will take is still undecided. In the meantime, here are answers to four questions consumers should be asking:

Will it end up costing me money or saving me money?

The answer is not easy since it is unclear how retailers will react. One choice is for retailers to add a surcharge for credit-card transactions.

"Merchants have to be really careful about that one," says Greg McBride, senior financial analyst for Bankrate.com. "If they charge more, there are a lot of customers who aren't going to pull out their wallets and get cash instead. They're going to turn around and walk out the door."

Ed Mierzwinski, consumer program director of the advocacy group U.S. PIRG, says transparency is good for shoppers. "If it's done right, consumers have more information about prices," he says.

The costs of credit card transactions are written into the price of everything at a store. So people who pay with cash are already paying extra.

"If [retailers] go to surcharging, the theory is that the extra cost of accepting credit cards will be captured by the surcharge, and everyone else will pay less," Mierzwinski says.

What will it actually cost to use credit if there are surcharges or fees?

That equation will be based on a charge fee that does not repel consumers, since banks want to keep their customers. "So the threat of surcharging by retailers may cause the banks to renegotiate the interchange rates," Mierzwinski says.

Most of the swipe fee is profit that banks use to fund credit card rewards programs. So rewards may decline as banks try to keep their swipe fees low, he says. "Savvy consumers are not going to pay 6 percent more to get a 1 percent rebate on their credit cards," McBride adds.

What information will I get about the charges?

Presumably, consumers will find out about the cost of their payment options at the cash register, which may end up upsetting them and causing longer lines.

The settlement outlines rules about what can be charged and in what way. Retailers will "have to make it very clear," says Mierzwinski.

Should I just start paying in cash?

Cash is always a good budgeting option, but McBride says he does not expect stores to start encouraging people to use paper money. "It doesn't reduce their costs if people use cash. You have to make bank runs every day."The proposed $7.25 billion Visa and MasterCard settlement with merchants announced earlier this month isn't a done deal. But if adopted, it would:

1. Allow retailers to collectively bargain on future swipe fees, which credit-card companies charge to process payments.

2. Open up the possibility that more retailers can add surcharges or other ways to pass on the processing fees for credit-card transactions.

3. Require that consumers receive clear, concise explanations of the fee options.