Surcharge Laws Are Changing. Here’s Why That Matters.

Tired of paying exorbitant credit card processing fees? Well, for starters, you should probably look for a processor who won’t overcharge you! But even the fairest and most transparent credit card processors can’t do anything about the fees imposed by the card networks (Visa, MasterCard, etc.). How can you avoid taking a hit each month on these fees? In some states (although currently not in California) you can pass these fees along to your customers – but is this the right call? Let’s break down the pros and cons.

Why Are We Talking About this Now?
If it seems like everyone is talking about credit card surcharges right now, it may be due to an important decision reached by an appeals court in California on January 3, 2018. The 9th Circuit Court of Appeals ruled that merchants have a constitutional right to be able to recoup the costs of a credit card transaction, and therefore that California’s ban on passing the fees along to customers is invalid. While the decision so far only applies to the handful of small businesses who brought the lawsuit, it has far-reaching implications. Before long, business owners could be freer to impose surcharges on credit card purchases, which is a subtle but important difference from offering a discount for paying with cash.

This decision joins several others, including a 2017 Supreme Court ruling against New York’s similar law, that have opened the door to surcharging. (Note: Card networks dropped their surcharge bans in 2013, leaving it up the individual states to legislate specific rules. The issue is still a gray area in many states, including California. This ruling does not change the fact that a surcharge ban is still on the books in California, but the Attorney General’s website states only that “each use of a credit card surcharge would need to be evaluated based on its own particular facts.” In light of this, some businesses have chosen to start imposing surcharges.)

Lower Fees and More Transparency

The most obvious benefit of a credit card surcharge to businesses is the resulting lower credit card fees. By passing fees along, business owners shift the burden off of themselves and on to their customers. But the biggest benefit might be the increased transparency in the payments industry as a whole. Most consumers don’t know that their fancy credit cards with all kinds of special rewards and perks come at a significant cost to the businesses they patronize. With surcharge bans in place, merchants have few other options besides grinning and bearing these high fees. In turn, credit card networks have few incentives to keep their fees competitive. Passing these fees along to the customer will shake up how customers pay, and will hopefully encourage card networks to drop their fees.

Consumer Outrage?

It’s safe to say that credit card surcharges will be a rude awakening for many consumers, and they may lash out at the business that is imposing the surcharge. The risk is higher for businesses who are early adopters as customers may choose to take their business to a merchant who doesn’t yet pass on credit card fees. However, with enough business participation, customers may be driven to pay with debit cards or cash more frequently, putting a serious dent in the bottom lines of the card networks. Credit card fees have done nothing but climb over the years, and perhaps this will cause card networks to sit up and take notice.

Are Credit Card Surcharges Right for You?

If this is the first you’re hearing about all this and you’re not sure if surcharges would be a good option for you, give your credit card processor a call. They can explain the pros and cons for your specific situation, determine if your current terminal will support a surcharge, and help you navigate the shifting regulatory framework in your state. If you’re looking for a processor to help you with this, we’d love to throw our hat in the ring. Give us a call at 1-855-360-0360 or drop us a line on our website. We’d be happy to show you why we’re a different kind of processor.

PS – Considering a credit card minimum? Read this first.

PPS – Still leasing your credit card terminal? Here’s why that’s a bad idea.