Surcharging

The subject of surcharging is one that has caused a great deal of confusion in our industry for quite some time. To help understand the rules, see the following summary of the rule changes.

What is a surcharge?

A surcharge, is an additional fee that a merchant adds to a consumer's bill when he or she uses a credit card for payment.

Can U.S. merchants add a surcharge to transactions made with a credit card?

Under the settlement, U.S. merchants have the option of adding a surcharge to credit card transactions. However, merchants must decide if they want to surcharge at the "brand level" or the "product level," but not both. A brand level surcharge applies the same surcharge to all credit card transactions for a particular brand (Visa or Mastercard). A product level surcharge applies to a particular type of Visa or Mastercard credit card (e.g., Visa Signature, Visa Signature Preferred, World Elite Mastercard).

Is surcharging limited to credit card transactions?

Yes. Surcharging continues to be 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 are the rules for "brand level" surcharges?

• The surcharge must be the same for all credit card transactions of that brand, regardless of issuer.
• The surcharge must be no greater than the merchant's average discount rate for that brand's credit card transactions.
• The surcharge cannot exceed 3% in any event.
• For merchants that accept multiple brands of credit cards, additional requirements apply (see below).

What are the rules for "product level" surcharges?

• The surcharge must be the same for all transactions of that particular product, regardless of the card's issuer.
• The surcharge must be no greater than the merchant's average discount rate for credit card transactions of that particular product, minus the regulated debit interchange rate.
• The surcharge cannot exceed 3% in any event.
• For merchants that accept multiple brands of credit cards, additional requirements apply (see below).

How should merchants handle surcharges for other payment networks?

For U.S. merchants that accept credit or charge cards from other payment network brands, including American Express, Discover and PayPal, surcharging practices are subject to a competitive "level playing field" limitation.

If the merchant accepts a competing payment network brand (e.g., Mastercard) that is as or more expensive to the merchant than another brand (e.g., Visa), the merchant may surcharge one brand's (Mastercard's) credit card only in the same way as the merchant would be allowed to surcharge the competing payment network's (Visa's) credit card.

If the merchant accepts a competing payment network brand of credit card that prohibits the merchant from surcharging in a particular channel of commerce (i.e., either face-to-face or non-face-to-face), the merchant may not surcharge one brand's credit cards unless it also surcharges the competing payment network's credit cards regardless of the cost of that card to the merchant. In this case, the amount of the surcharge on the competing brand must be at least the lesser of the cost to accept the competing brand's credit cards or the surcharge imposed on the first brand's cards.

Do merchants who surcharge have to register or disclose their surcharging policies?

Yes. Before assessing a surcharge, merchants must meet certain notification and disclosure requirements.

Merchants must notify their acquirer, also known as their sponsor bank, in writing at least 30 calendar days in advance before imposing a surcharge so they can monitor compliance.

The merchant must provide clear disclosure to its customers that it is imposing a surcharge, including the amount, and that the surcharge is not greater than the merchant's discount rate.

Merchants are required to display signage at the entrance of their business and at the point of sale. In New York, merchants are required to display additional signage to clearly show how much customers will pay if they use a credit card or pay with cash.

The dollar amount of the surcharge must be provided on the transaction receipt.

In addition, Mastercard and Visa also require that the surcharge amount be included in the transaction that is sent to Mastercard and Visa. As a result, merchants are effectively required to have a credit card terminal or other POS system that can provide the transaction surcharge as part of the credit card transaction.

Do any laws prohibit surcharging?

Surcharging is currently prohibited in four states: Connecticut, Maine, and Massachusetts. Additionally, Clearent does not support surcharging in Oklahoma. Please consult your legal advisor to make sure you comply with current applicable state and local laws regarding surcharging.