Accepting credit cards is a necessity for businesses. Whether the business operates online, has a physical location, or both, being able to accept credit cards is a critical part of running a successful business. But it doesn’t come without costs. Finding a way to offset the costs associated with accepting credit cards is an attractive idea for business owners. One way to reduce or even eliminate the cost of accepting credit cards is by implementing a surcharge program.
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Thanks to the ever-changing regulations and requirements for implementing a surcharge program, it can be difficult to adopt and implement a compliant program. Not only do the card brands have their own rules and requirements for running a compliant program, there are also rules at the state and federal level. If a merchant is looking to reduce his credit card processing fees by implementing a surcharge program, the last thing that merchant wants is to be hit with a fine from the card brands.
To help de-mystify surcharging, we’ve put together a summary with the latest information.
What is a surcharge?
Surcharging is an additional fee charged by a merchant to the consumer for the use of a credit card payment for goods or services. This allows merchants to offset some of their credit card processing fees by accessing a fixed percentage rate or fixed dollar amount on top of the cost of their product and/or service for any customers paying with a Visa, Master Card, Discover or American Express credit card.
How is Surcharging different from Cash Discounting?
A cash discount is when a business owner offers a discount to a customer who pays by cash or check. A surcharge is when a business adds an additional fee to purchases made with a credit card.
Can a surcharge be applied to a debit card transaction?
No. Surcharging is prohibited on debit and prepaid card transactions. With debit transactions, surcharging is prohibited on all transactions, regardless if they are run as debit or credit.
What requirements must be met to implement a surcharge?
Surcharging can be imposed if:
- The surcharge is the same for all credit card transactions
- The surcharge is no greater than the merchant’s overall average discount rate for their credit card transactions taken in the preceding 1-month period or preceding 12-month period (Product Level must be the same, minus the regulated debit interchange rate).
- The surcharge does not exceed 4% (the 4% maximum is set even in the case where a merchant’s average discount rate exceeds 4%)
Does the merchant have to register with the card brands?
Before implementing a surcharge program, merchants must register with MasterCard and Visa. Discover and American Express allow surcharging but do not require merchants to register with them.
What options do merchants have for implementing a surcharge program?
U.S. merchants have the option of adding a surcharge in one of two ways:
- Option 1: Brand level: Merchants may add a surcharge to all credit cards regardless of whether it is a consumer card, rewards card, business card, corporate card, purchase cards, etc.
- Option 2: Product level: Merchants may add a surcharge to all credit cards that signify an actual product the card brand offers, i.e. VISA Traditional Rewards, VISA Signature, World Elite MasterCard, etc. This is a good option for merchants that do not want to surcharge all customers who pay by credit card but rather only those customers who use certain higher cost credit cards.
How do merchants register with MasterCard?
Merchants who choose to surcharge must notify MasterCard 30 days prior to beginning to surcharge; click here to notify MasterCard.
How do merchants register with Visa?
Merchants who choose to surcharge must notify Visa 30 days prior to beginning to surcharge; click here to notify Visa.
Do merchants running a surcharge program need to disclose their surcharging policies to their customers?
Yes. Merchants who surcharge must provide clear disclosure as follows:
- At the point-of-entry of a retail merchant location or in an online environment on the first page of the website that references credit card brands.
- This disclosure must indicate that the merchant surcharges and that the surcharge is not greater than the merchant’s cost of acceptance.
- At the point of interaction or sale with the customer, i.e. cash register in a retail store or payment page of a website
- This disclosure must indicate that the merchant themselves are imposing the surcharge, the amount of the surcharge as a percentage must not reflect negatively against any card brand, card network, issuing bank, etc.
Additionally, the maximum allowable surcharge amount cannot exceed 4% of the total sales transaction amount and must not exceed the merchants’ cost of credit card processing. A surcharge applied to a transaction must be returned to the cardholder in full or partial amount on return transactions.
Merchants must in effect use a point of sale terminal that allows for the surcharge to be part of the total transaction amount and be properly disclosed on the receipt.
If a merchant’s equipment does not support surcharge specifications, merchants will need to upgrade their equipment to a solution that does.
Are there any states that prohibit surcharging?
Yes. As of the publication of this article, we are aware of 4 U.S. states that have laws limiting surcharging including:
Maine and New York have additional state statues that take precedence over card brands. These two states require additional consumer disclosures, which include posting both cash and credit prices on their disclosures. Merchants should consult with their legal counsel about the laws regarding surcharging within their state.
If you are ready to get started with a compliant surcharge program, contact us at firstname.lastname@example.org.