Key Takeaways:
Strict Guidelines and Regulations: Surcharging, an additional fee on credit card transactions to cover processing costs, is governed by federal, state laws, and card brand rules. States like Maine, Connecticut, and Massachusetts currently prohibit surcharging. Detailed and updated regulations are essential to ensure compliance.
Crucial Requirements for Compliance: Implementing surcharging demands adherence to specific conditions: no surcharges on debit/prepaid cards, limited surcharge percentage (equal to processing fees or 4%), mandated disclosure to customers, proper signage for card present scenarios, and registration with card brands before initiation. Compliance with these is imperative for merchants considering surcharging.
Surcharging Explained
A surcharge is an additional fee added to a credit card transaction intended to cover the merchants cost to process the transaction. The additional fee is in the form of a percentage and cannot be more than the cost to process the transaction, or 4%. The fee is added to the cardholders bill when he or she uses a credit card for payment.
Surcharging is a complex topic which is governed by federal and state regulations as well as the card brand rules. State regulations are constantly changing. Currently, at the time of this blog post, Maine, Connecticut, and Massachusetts all prohibit businesses from applying surcharging their customers. The best source to review the patchwork of state laws and regulations is from the National Council for State Legislatures which maintains a list of all the states and their current statutes as it relates to surcharging.
Key Requirements for Surcharging
The card brands have specific requirements around surcharging including disclosures, notices and amounts businesses are aloud to surcharge. Businesses and software platforms that would like to implement surcharging must consider the following:
- In the US, surcharges are not allowed on debit or prepaid cards. This is part of the the Durbin legislation and the Visa Core Rules.
- The surcharge cannot exceed the amount the merchant pays in processing fees or 4%.
- Merchants must provide adequate disclosure to their customers about their intention to apply a surcharge. Sample signage and disclosures from Visa can be found here.
- For retail card present scenarios; Include the proper signage for sufficient point of entry and point of sale, so the merchant can be compliant.
- For ecommerce card not present scenarios; Include a disclosure so the cardholder is aware of the surcharge prior to checking out.
- The cardholder must be given the opportunity to cancel the transaction after being notified about the surcharge.
- Merchants intending to apply a surcharge must register with the card brands 30 days prior to implementing their surcharge program. You can register with Visa here and MasterCard here.
- The surcharge amount must be clearly itemized on the transaction receipt or invoice.
Surcharging can allow merchants to recoup their cost of credit card processing. However, if implemented, they must pay close attention to the applicable state and federal laws as well as the card brand rules as outlined above.
