The practice of surcharging, particularly when it pertains to credit card transactions, has long been a topic of misunderstanding. As businesses grapple with the costs associated with credit card processing fees, many have looked to surcharges as a way to offset these expenses. 

Over the years, credit card surcharge laws have undergone numerous changes, reflecting the dynamic interplay between consumer protection efforts, merchant rights, and the interests of credit card networks. 

Given the potential legal and financial implications of incorrect surcharging practices, it’s imperative for merchants to be well-informed. Continuous updates to surcharge laws mean that what might have been acceptable a year ago could now be in violation of current regulations. This ever-changing environment underscores the importance of staying abreast of the latest developments in the realm of surcharging.

To demystify this intricate topic and provide clarity, we’ve compiled a comprehensive summary of the most recent rule changes and best practices. This guide aims to equip merchants with the knowledge they need to make informed decisions about surcharging, follow card brand compliance and foster trust with their customers.

What is a surcharge?

A credit card surcharge, often referred to as a surcharge fee, is an additional fee that a merchant adds to a consumer’s bill when he or she uses a credit card for payment. This is distinct from a convenience fee, which might be charged for the convenience associated with a specific payment method.

Credit card networks have established guidelines for implementing surcharges, ensuring that consumers are aware of any additional costs. It’s crucial for merchants to differentiate between surcharges and convenience fees. 

While surcharges are tied directly to the use of credit cards, convenience fees are levied for the added value or convenience of a particular payment channel, such as phone or online payments. Merchants must also be mindful of credit card surcharge laws and regulations, ensuring they remain compliant while navigating the complexities of payment processing.

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 specific type of Visa or Mastercard credit card (e.g., Visa Signature, Visa Signature Preferred, World Elite Mastercard).

The decision to implement a brand level or product level surcharge often hinges on the merchant’s transaction volume and the diversity of credit cards they process. For instance, a business with a high volume of specific credit card transactions, like Visa Signature, might opt for a product level surcharge to more accurately offset their processing fees. 

On the other hand, businesses that process a wide variety of cards under a single brand might find it simpler to apply a uniform brand level surcharge. It’s also essential for merchants to be transparent about these surcharges, ensuring customers are informed before making a payment. This transparency not only builds trust but also ensures merchants adhere to the guidelines set by credit card networks and remain compliant with credit card surcharge laws.

Is surcharging limited to credit card transactions?

Yes. 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.

The rationale behind this distinction lies in the cost structures and regulations governing different card types. Credit card transactions often come with higher processing fees, prompting some merchants to consider surcharging as a way to offset these costs. 

On the other hand, debit card and prepaid card transactions typically have lower processing costs, and regulatory bodies have aimed to protect consumers from additional fees on these types of transactions. 

It’s also worth noting that while merchants might see surcharging as a way to manage the costs associated with credit card processing, they must always remain compliant with the guidelines set by credit card networks and be aware of the nuances in credit card surcharge laws. For instance, while surcharging might be permissible on credit card transactions, offering customers discounts for using cash or other payment methods can be an alternative strategy that achieves a similar objective without imposing additional fees.

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

Absolutely. Before imposing credit card surcharges, merchants must meet certain notification and disclosure requirements. Card brand regulations are constantly changing and merchants should research current regulations around surcharging with the card brands. Merchants must notify their merchant services provider and provide clear disclosure to its customers about the surcharge amount. This includes displaying signage at the entrance and at the point of sale. The dollar amount of the surcharge must be provided on the transaction receipt. Additionally, both Mastercard and Visa require that the surcharge amount be included in the transaction sent to them.

Transparency is paramount when it comes to surcharging practices. By ensuring that customers are well-informed about any additional fees, merchants can maintain trust and avoid potential disputes. The requirement to display signage at both the entrance and the point of sale ensures that customers are made aware of surcharges at multiple touchpoints, allowing them to make informed payment decisions. Providing the surcharge amount on the transaction receipt offers an added layer of transparency and serves as a record for both the merchant and the customer. 

Furthermore, by notifying their merchant services provider and including the surcharge amount in transactions sent to card networks like Mastercard and Visa, merchants can help themselves  remain compliant with network guidelines and avoid potential penalties. 

It’s also worth noting that some states have specific credit card surcharge laws that may impose additional requirements or restrictions on surcharging practices, so merchants should always stay updated on local regulations.

Do any laws prohibit surcharging?

Credit card surcharge laws vary by jurisdiction. Surcharging is currently prohibited in CT, ME, MA, NY, and OK. These states have enacted legislation that prevents merchants from adding an extra fee when customers choose to pay with a credit card. The rationale behind such laws is often to protect consumers from unexpected costs and to promote fairness in the marketplace. Additionally, Clearent as a prominent payment processing company, does not support surcharging in Oklahoma.

It’s essential for merchants to be proactive in understanding and adhering to these laws. Non-compliance can result in penalties, legal actions, and damage to a business’s reputation. Surcharging policies can be a sensitive topic for consumers, and transparency is paramount. Merchants should always clearly communicate any surcharge practices and ensure they are applied fairly and consistently.

Navigating the intricate landscape of surcharging, especially in the realm of credit card transactions, requires diligence, understanding, and a commitment to staying updated. As the industry continues to evolve, merchants must prioritize transparency and compliance to foster trust with their clientele. By staying informed about the latest surcharge laws and best practices, businesses can make informed decisions that benefit both their operations and their customers. As we’ve explored in this guide, while surcharging can offer financial advantages to merchants, it’s essential to approach the practice with a clear understanding of its implications and the ever-changing regulations that govern it.

Given the evolving nature of credit card surcharge laws and the differences that exist between states, it’s crucial for merchants to consult with their legal advisor or their merchant services provider. This ensures they stay updated on any changes and comply with current applicable state and local laws regarding surcharging. It’s also worth noting that even in states where surcharging is allowed, there might be specific requirements or limitations that merchants must adhere to.

Clearent/XplorPay assumes no liability for any errors or omissions in the content. The information contained herein is not legal advice and is provided on an “as-is” basis with no guarantees of completeness or accuracy.

Article by Clearent by Xplor

First published: February 28 2024

Last updated: March 28 2024