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Merchants Considering Credit Card Surcharges

Starting this week, prices are 2 percent lower on ScanMyPhotos.com. At the grocer Kroger, executives are contemplating charging two prices for groceries — a lower price when shoppers pay with cash, and a higher one when they use a credit card. And at restaurants across the country, owners are weighing the wisdom — or lack of it — of a surcharge on bills paid with credit cards.

Businesses on Monday sorted through the repercussions of a multibillion-dollar settlement late last week with Visa and MasterCard , and there was little consensus about how things would settle out. The tentative deal allows merchants to offer discounts to customers paying with cash or checks, and to impose fees when they pay with credit cards. Businesses can also negotiate directly with Visa and MasterCard over the rates they pay for credit card transactions.

In a symbolic move, ScanMyPhotos.com, one of the plaintiffs in the class action that led to the settlement, dropped its prices to demonstrate “that cardholders benefit” from the deal, not just people who pay with cash, said Mitch Goldstone, the chief executive. Mr. Goldstone reckoned that merchants and Web sites like his, which accepts only credit card payments, will now be able to negotiate with the credit card companies for lower transaction fees.

Others were less optimistic about the benefit for consumers and businesses. In a statement, Scott DeFife, the executive vice president for policy and government affairs at the National Restaurant Association, said the terms of the settlement were far more complicated than the banks and the credit card companies had portrayed.

“This settlement doesn’t solve all problems, and we would call on the card companies to look at this as an opportunity to change their long-term practices and start a new dialogue with their merchant customers,” Mr. DeFife said.

Under the terms of the settlement, Visa, MasterCard and banks including JPMorgan Chase and Bank of America will pay retailers about $6 billion to settle claims that they had engaged in anticompetitive practices in payment processing.

Retailers could start imposing a surcharge for payments made by credit cards as soon as December, if the court grants preliminary approval of the settlement, said K. Craig Wildfang, a lawyer with Robins, Kaplan, Miller & Ciresi who represented plaintiffs in the lawsuit.

But because the settlement results from a class action, plaintiffs can opt out of it or object to it. One plaintiff, NACS, the convenience store association, has said it will reject the settlement, in part because it does not stop Visa and MasterCard from raising rates.

For some retailers, the outcome of the settlement could be different prices at the checkout counter depending on how customers pay, said Keith Dailey, a spokesman for Kroger. “The discounting aspect is, in our view, a very powerful tool at a merchant’s disposal,” he said.

Under the terms of the settlement, retailers can disclose to customers how much each type of payment costs retailers, and give discounts for those paying with cash, debit cards or low-frills credit cards that cost retailers less than traditional cards.

“Through discounted pricing on electronic payments, we can begin to inform our customers and also drive our customers through using more efficient and lower-cost products,” Mr. Dailey said. He said Kroger had not yet decided how this would work — for instance, whether it would have signs on merchandise showing two-tier pricing or whether the differences would be applied at the register.

Given a shaky economy, many restaurants and other retailers said they had no plans to charge more when customers paid with credit cards.

“Shopping with a credit card is a convenience for our customers and is an important part of our customer service,” said Carolyn Beem, a spokeswoman for L.L. Bean. “We have absolutely no plans to add a surcharge for credit card purchases.”

Rick Camac, chief executive of the Fatty Crew group of six restaurants, including Fatty Crab, said that “customers might see it as another way you’re trying to get at them.”

“I think you have to take the hit, or make it up by adjusting your prices,” Mr. Camac said of paying for the credit card fees.

Rich Jeffers, a spokesman for Darden Restaurants , which operates the Red Lobster, Olive Garden and Longhorn Steakhouse chains, among others, said customers would pay the same price regardless of payment method. “Whether our guests choose to pay with cash, credit, debit or even one of our gift cards, the amount doesn’t change,” Mr. Jeffers said.

For luxury restaurants, there was also little expectation that customers who pay with credit cards would be treated differently. “It’s not a very elegant thing to do,” said Eric Ripert, executive chef and an owner of Le Bernardin in Manhattan.

Still, many retailers and restaurateurs were preparing to press Visa and MasterCard for better transaction rates so they would not need to pass costs on to customers — or absorb them. A big sign at checkout — already common at many gas stations — offering shoppers discounts for using cash would presumably stop some people from using cards — giving merchants some negotiating power.

“All merchants will, for the first time, have some leverage with the big banks,” said Mr. Dailey of Kroger.

Mallory Duncan, general counsel for the National Retail Federation, said he had doubts that stores would be able to negotiate good rates with the credit card companies under the terms of this settlement.

“Now, they won’t negotiate with the biggest merchants in the entire country, so how are 100 hardware stores going to come together and have any kind of effect? It’s illusory,” he said.

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