Have you ever visited a business and seen two prices posted for the same product or service – a cash price and a credit card price? Charging customers a little bit extra to pay by credit card is a way for business owners to fight back against the credit card fees that cut into their bottom lines. Some states have laws that regulate or prohibit this practice, however. Let’s take a closer look at credit card surcharges and the rules that govern them.
What is a Surcharge?
Simply put, a credit card surcharge is an additional fee added to credit card transactions, a “penalty” or “tax” of sorts for using this convenient but expensive payment method. The major card associations (Visa, Mastercard, Discover, American Express, etc.) permit the practice, but some states do not. Even then it’s not terribly clear cut – in California, for example, surcharges are illegal, but a January 2018 decision by the Ninth Circuit court declared it unconstitutional. The Attorney General currently states that “each use of a credit card surcharge would need to be evaluated based on its own particular facts,” which is somewhat vague . Plus, even in states where surcharges are illegal, it’s usually fine to offer a discount or other incentive to cash-paying customers. It sounds like the same thing, but to regulatory bodies it makes all the difference in the world.
What Are the Rules?
Each credit card association has a slightly different set of rules regarding surcharging, and each tends to enforce them fairly strictly. The main goal is to ensure that no harm comes to the customer for choosing to pay with a credit card. There are limits to the surcharge amount you can charge (generally up to your discount rate – the fee you pay to your credit card processor – but no more than 4%), and you can’t charge more for one type of card (say, American Express) even though your rates for that card type may be higher. You must also give “appropriate notice” to your customers that this surcharge will take place. This is generally defined as posting a sign on the entrance to your place of business as well as at your cash register indicating the fees you charge and confirming that they does not exceed your processing fees.
Your receipts need to show the surcharge amount on its own line, and you must also include it when your terminal makes its network authorization request and during the settlement process. This means you’ll need a POS system that can handle this type of transaction – talk to your processor about obtaining one. You’ll need to notify the card association and your credit card processor in writing at least 30 days before you intend to put the surcharge in place. And finally, you can choose to apply a surcharge to only certain brands of cards (all Discover cards, for instance) or certain products (only Visa Signature cards), but you are not allowed to do both.
With all the rules and regulations out there, credit card surcharges are often more hassle than they are worth. In addition to all of the above, we haven’t even discussed the negative impact implementing this type of practice might have on your customer experience. Rather than finding ways to squeeze more money out of your customers to cover high credit card fees, why not switch to a payment processor who’s on your side and who doesn’t try to slip in a bunch of hidden costs. While we can’t remove credit card fees completely, we at 360 Payments work hard to make sure our customers are getting the fairest deal possible with the lowest rates and the best customer service. Give us a try – call 1-855-360-0360 or drop us a line on our website.
PS – Credit card surcharges are not the same as minimums – here’s the difference.
PPS – Stuck in a contract with a credit card processer that’s not right for you? That’s OK.