Credit card surcharging – the practice of assessing an additional charge or fee on transactions that are paid with a credit card – has become a hot button issue lately. We’ve been getting lots of questions from merchants regarding the legality of surcharging, whether it’s a good idea, and how to do it. The answers to those first two questions are murky at best – while the major credit card brands started permitting surcharging in 2013, many states stepped in to ban the practice. Some of those bans are still in place, some have been overturned, and others are being appealed. Furthermore, there’s mixed data on whether surcharging defrays costs or drives customers away. We dig a bit deeper into these questions here, and Visa has a great chart that will walk you through the decision-making process. This post, however, will show you how to begin surcharging if you’ve already decided it’s right (and legal) for you.
Step 1: Find an Experienced Processor You Trust
First things first: give your credit card processor (such as 360 Payments) a call to see if your terminal supports surcharging and what options are available. Depending on your situation, your processor may need to change your account settings on their end or you may need to switch to a different terminal if the one you use now doesn’t have a surcharging feature. Your credit card processor will be able to explain the types of surcharges your equipment and account can support and help you decide if making a dramatic change to your setup to add surcharging is worth it.
Step 2: Determine the Types and Amounts of the Surcharges
There are two types of surcharges to choose from: brand-level and product-level. Brand-level surcharges impose one flat fee across all credit cards of a certain brand (Visa, Mastercard, etc.) while product-level surcharges allow you to pick and choose certain types of cards. For instance, you may decide you only want to apply a surcharge to transactions made with commercial cards.
Either way, there are limits on the amount of the surcharge. It’s important to remember that surcharging is designed to help merchants recoup the costs of credit card processing, not to make a profit. Therefore, you can only add a surcharge that is less than or equal to the amount it costs you to accept the card. For brand-level surcharges, surcharges are capped at the average effective rate you pay for all card types across that brand. For product-level surcharges, surcharges are limited to the fee you pay to accept that specific card type. Regardless of what your specific fees are, no surcharge of any kind can exceed 4% of the total cost of the transaction. Surcharges on debit and prepaid cards are also prohibited, even if the customer chooses to run a debit card as a credit transaction.
It is legal to assess surcharges on only certain card brands, but restrictions apply. For instance, if you are paying a much higher fee to accept American Express cards, you might want to apply a higher surcharge to your American Express transactions. This isn’t allowed, however – you are not permitted to charge a higher surcharge for one brand than another. In other words, if a particular card costs your business more to accept, surcharges on that brand are still limited to the amount you impose on less expensive brands.
Step 3: Notify the Major Card Brands, Your Processor, and Your Bank
Even if surcharging is legal in your state, you can’t begin charging customers right away. Thirty days before you plan to start surcharging, you are required to notify the major credit card brands of your intentions, as well as your processor and your bank. You will need to provide information about your business and the type and amount of the surcharge(s) you plan to impose, as well as the channels through which you plan to impose them (ecommerce, in-person, phone order, etc.). To notify your processor, you will most likely need to submit a form – here are some examples. You can notify the card brands using the simple online forms below:
Visa: https://usa.visa.com/Forms/merchant-surcharge-notification-form.html
Mastercard: https://www.mastercard.us/en-us/surcharge-disclosure-webform.html#contentpar_text
Discover: https://www.discoversurcharge.com/
American Express: Does not require advance notification
Step 4: Disclose the Surcharge to Your Customers
There’s one final step before you’re ready to start imposing surcharges. Credit card brand regulations require that you provide clear and legible notice of the surcharge at the entrance to your business and at the point-of-sale. Signage must include the amount of the surcharge and the products or brands to which it applies – Visa has some great examples here. You are also required to show the final dollar value of the surcharge on the customer receipt as a separate line item that is clearly marked and easily understood to be a credit card surcharge. Your credit card processor will likely need to adjust your account settings to make this possible. When in doubt, over-disclose.
Need More Help?
Regulations are changing all the time, and while we make every effort to keep this information up to date, you can also always call us at 1-855-360-0360 to get additional information or clarification. Visa also has great material on their regulations here and here, and Mastercard has details on theirs here. To access the American Express regulations, sign into your merchant account here and click “View Merchant Policy.” You can also always ask us a question on our website, and we will find out the answer for you.
PS – More changes are afoot in the credit card industry. Soon you might be able to kiss receipt signatures goodbye!
PPS – Get your PCI compliance plan up to speed with these tips.