Do you Surcharge? Credit card processing does not need to be an automatic expense to doing business!

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WHAT IS A CREDIT CARD SURCHARGE?

Surcharging is the practice of adding a small fee to a credit card transaction to cover the merchant’s costs for processing the payment. Instead of the merchant having to absorb this expense, the customer who chooses to pay by credit card pays for the processing costs that do not apply to other payment methods such as cash or check.

GET TO KNOW CREDIT CARD SURCHARGE LAWS

Before we review the various credit card guidelines for surcharges, let’s address the question of is it legal to charge a fee for using a credit card or not in the state your business operates. You will need to check the laws for the state(s) your business operates in for verification and check frequently as these regulations seem to change frequently. Over the past several years, the number of jurisdictions that prohibit credit card surcharging has diminished as legal challenges have resulted in many laws banning the practice being overturned by the courts.

STATES THAT DON’T ALLOW CREDIT CARD SURCHARGES

In the following states, anti-surcharging laws remain but are unenforceable due to recent court decisions:

• California
• Florida
• Kansas
• Maine
• New York
• Oklahoma
• Texas
• Utah

As of mid-2021, only two states and one US territory don’t allow credit card surcharges. In the following jurisdictions, you won’t be able to impose surcharges (at least for now):

• Connecticut
• Massachusetts
• Puerto Rico

If your business operates in one of the jurisdictions listed above, imposing a credit card surcharge is not legal. However, you can still offer a discount for customers who want to pay by cash or check instead. You can always incentivize cash-paying customers with a discount, as opposed to discouraging card payments by adding a fee. BUT most customers want to and expect the ability to pay with a credit or debit card.

Another limitation you need to consider, as well: You cannot impose a prepaid card or debit card surcharge; you can only do so on credit cards. Transactions processed using signature debit (often referred to as “running a card as credit”) are still debit and are therefore exempt from surcharging. That’s because of the restrictions implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Durbin Amendment specifically deals with debit transactions, including the implementation of a cap on interchange fees. (Worth noting: You won’t see those savings if your processor doesn’t support PIN debit or if you are on a tiered or flat-rate pricing plan.)

Two states require additional disclosures to surcharge credit card processing fees: Maine and New York. In both cases, you must post the cost of paying with cash and the cost of paying with a card using dollars and cents. This is on top of Visa, Mastercard, American Express, and Discover requirements, which require you to post notifications at the point of sale and specify the surcharge amount.

Also, note that the limitations on surcharging generally only apply to consumer businesses. Separate laws and regulations affect the ability of government agencies and educational institutions to implement surcharges, and these are allowed even in states that prohibit surcharging by consumer businesses.

How does all this affect large businesses that have multiple locations? If your business operates in various states, you can still add a surcharge in states that allow the practice — just not in the ones with bans. You’ll want to verify that you’re compliant with each state’s credit card surcharge laws as well.

CREDIT CARD SURCHARGE RULES: VISA, MASTERCARD, AMERICAN EXPRESS, & DISCOVER

Once you’ve made sure that it’s legal for you to impose a surcharge in each state, there’s still a bit of legwork and research to be done.

First, you need to look at which cards your business accepts because that will affect your policies. Do you accept Visa and Mastercard? American Express? What about Discover? Each of these card brands has set its own guidelines for merchants wanting to add surcharges for credit cards — which means you should meet all the applicable requirements before you get started. Fortunately, the guidelines for the networks are generally the same:

1. You must notify the card association and your merchant services provider of your intent, in writing, at least 30 days in advance.(Note: American Express surcharge rules do not require you to provide notice so long as you comply with all other rules.)
2. Surcharge amounts are limited to your effective rate for credit card transactions, capped at 4% (2% in Colorado).In other words, you can’t profit from surcharges; you can only recoup your baseline costs.
3. You must post appropriate notice inside your store, both at the entrance and at the point of sale. Similar rules apply to eCommerce businesses at the checkout page of their websites.
4. You need to include the surcharge amount on the receipts as a separate line item. The surcharge also needs to be included in the network authorization request and settlement. (Note: American Express is the only brand with an exception to this rule.)
5. For Visa and Mastercard, you can choose to apply brand-level surcharges (e.g., all Visa cards) or product-level surcharges (only certain lines of cards). However, you cannot do both.

Once you understand the core credit card surcharge rules, you need to notify your merchant and the relevant card networks that you intend to start imposing a surcharge. Finally, you need to make sure your payment gateway or processing equipment, as appropriate, is designed to accurately assess the surcharges in compliance with the card network requirements.

BEST PRACTICES FOR SURCHARGE PROCESSING

Now that we’ve covered the core rules, let’s take a closer look at some of the common questions that come up with surcharge processing, from how much you can charge to who you need to contact.

NOTIFY THE ACQUIRER & CARD NETWORKS

The best way to notify your processor of your intent to start surcharging is to reach out to the account representative for your merchant account and ask how they want to proceed. You must provide written notice, so a phone call isn’t sufficient. But your account representative (or anyone working in the customer service department if you don’t have a dedicated representative) should be able to tell you to whom you should direct that request.

GIVE NOTICE TO CONSUMERS

The requirements for surcharging eCommerce transactions, as from PayPoint™ (Micro Key Customers’ Payment Portal), dictate you must include the disclosure in the checkout process, and the surcharge must be featured on the receipt.

CORRECTLY DOCUMENT SURCHARGES ON CREDIT CARD TRANSACTIONS

If you plan to implement surcharges, keep in mind that Visa, Mastercard, and Discover require your point-of-sale system to include the surcharge as a line item (although there are no rules as to the invoice wording for adding a credit card fee). You must report all surcharges back to your processor and the credit card networks. Before you decide to implement a surcharge, you should check to see that your existing accounting and processing partner setup and supports it.

Note: Micro Key Solutions’ Accounting Software fully supports surcharging functionality in conjunction with the IES processing portal. Interested? Shoot us an email, sales@microkey.com or give us a call @ 407-870-0040 ext. 0