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 customers 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. Massachusetts and Connecticut still have bans in place. Furthermore, there’s mixed data on whether surcharging defrays costs or drives customers away. 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 Who Offers a Compliant Surcharge Program
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 implement surcharging is worth it.
Can you apply a “service fee” like many other small businesses? The short answer is “No”, but you can dive into the legalities here. Adding a service fee is surcharging because the posted service or product prices are cash prices and you are increasing the bill total when a customer pays with a credit card. Cash discounting is posting credit card prices and then applying a discount for paying with cash or cash-equivalents (debit card, pre-paid card). Attempting to initiate your own fee, can be subject to heavy fines.
In Apr 2023, VISA is taking a firm stance on non-compliant surcharges and cash discounting. Not only are they capping the amount you can charge customers to 3%, but they are also increasing their number of secret shoppers 10 fold. That’s right! They are paying secret shoppers to spend money in stores and hand out fines ranging from $5,000-25,000 per occurrence/transaction. So, how can you avoid fines and get help covering the cost of accepting cards? Contact us or follow the steps below.
Step 2: 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. You either need to register through a processor that has a compliant program like 360 Payments, or register directly with the card brands. With 360 Payments, we do all the administrative work for you! If registering directly, you must do so thirty days before you plan to start surcharging. 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.). You can notify the card brands using the simple online forms below:
Visa requires you to notify your processor/acquirer: https://usa.visa.com/content/dam/VCOM/global/support-legal/documents/merchant-surcharging-considerations-and-requirements.pdf
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 3: 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 and invoices 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.
Don’t Forget Debit Cards!
To remain compliant with card brand rules and avoid heavy fines, you need to have a solution that removes the surcharge amount on debit cards. To be clear, this includes debit cards “run as credit.” The logic behind this rule is that debit cards are really inexpensive and basically the same cost as cash. Therefore, you shouldn’t surcharge on those cards. Ask your processor if their solution (terminals and online processing) can automatically detect a debit card and remove the surcharge amount.
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.