Credit card surcharge rules and laws 2023

Looking for a credit card surcharging solution to offset expenses? The rules vary across multiple card brands and terms of acceptance. Here’s an updated review of who can surcharge, what card types, and checklist of how to roll out credit card surcharge at your company. The answers are targeted for business to business merchants, my area of expertise. Historically if a merchant complies with Visa surcharge rules, they’d be compliant with other brands, so we often cite that as the standard.

What is a credit card surcharge?

Surcharge is any fee charged by a merchant for the use of a card.

What’s the difference between a surcharge and convenience fee? Convenience fees can only be charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels and not charged solely for the acceptance of a Card. If a merchant only accepts credit cards, it’s prohibited. If a merchant is 100% card absent, merchant cannot charge a convenience fee.

Card brands agree on this for surcharging:

  1. Merchant Discount Rate is the fee, expressed as a percentage of the total transaction amount that a Merchant pays to its Acquirer or Service Provider for transacting on a Credit Card brand. In short, it’s typically all the fees on your merchant statement EXCEPT PCI compliance, terminal rental fees or any other special fee that is not paid via the mechanism of the per-transaction merchant discount fee. Per Visa, merchants must “Limit the amount to your merchant discount rate (MDR) for the applicable credit card or 3% whichever is lowest.” This is the reason merchants can get in trouble if their surcharge solution provider charges a flat amount for every card type.
  2. The Surcharge amount must be submitted separately (in the defined surcharge field) from the Transaction amount in the authorization and clearing message.
  3. The receipt must list the surcharge amount separately.
  4. If the original transaction has a partial or full refund, the surcharge amount must all be refunded proportionally.
  5. Surcharge on debit or prepaid cards is prohibited for all merchants.To ensure compliance use a payment gateway that can identify the card brand and type of card to allow surcharges only on eligible cards.
  6. The fee must be relative to their average cost of card acceptance.

How much can a merchant surcharge?

In short, surcharging is allowed to cover costs, not to make a profit. Let’s face it, based on the rules above, to simplify implementation, merchants will surcharge at the brand level because they lack the technology to discern between product types on a per transaction basis. Taking all that into account what can you surcharge?

  • Cannot exceed Maximum Surcharge Cap, which for Visa is currently 3%, effective April 15, 2023, and MasterCard remains at 4%.

Just because somebody offers it doesn’t make it right. Some companies are offering “free merchant accounts” by offsetting fees with surcharge of 3.5% or even 4%, both exceeding current rules. The average B2B company has much lower than 3.5% effective rate so that was always a violation of card acceptance rules, subject to penalty. The companies offering these services are making big money on the spread of actual fees vs what customers are paying. Again, these are card brand rules violations.

Surcharge checklist:

  1. Notify card brands (Visa etc) in writing at least 30 calendar days before assessing a US Credit Card Surcharge; must state whether will surcharge at the brand level or product level.
    1. https://www.visa.com/merchantsurcharging
    2. http://www.mastercard.us/merchants/support/surcharge-disclosure.html
    1. https://www.discoversurcharge.com
    2. Amex- none required
  2. For card not present orders, disclose verbally if telephone; for online orders minimum 10-point Arial font, but in any case no smaller or less prominent than surrounding text.
  3. Receipt must be delivered with the surcharge as a separate line item.
  4. The surcharge amount must be sent with the transaction for authorization.

 Which states prohibit merchants surcharging?

Per Visa, as of April 15, 2023, they are “Connecticut, Maine, Massachusetts, and Oklahoma. Note also that Merchants located in Colorado may not surcharge more than 2% as per State law.” However, due to federal and other court rulings, multiple states have backed away from the bans. The legislative intent in many of these states was to protect consumers, and not to restrict B2B surcharging, therefore, B2B companies may have exceptions.

What’s the penalty for non-compliance with surcharge rules? Acquirers face fines. Acquirers of any merchant identified as surcharging improperly may be assessed an immediate US $1,000 fine. This is just the beginning and is not all-inclusive. Visa is proactively enforcing surcharge rules from April 15, 2023.

  1. In 2015, the 11th U.S. Circuit Court of Appeals, a federal court, overturned Florida state law as being unconstitutional, allowing surcharges to legally continue in Florida and nine other states that had enacted bans against them. The case was a highly contentious 2-1 decision in which the court’s chief judge said the state surcharge bans (like Florida’s) were “being struck down by a federal court for no good reason.”
  2. In December 2019, Oklahoma attorney general official opinion declaring the state’s no-surcharging law unconstitutionally restricts free speech. 

Surcharge Laws Stories:

  • 2/2023 NJ Businesses Fined For Credit Card Surcharge Without Proper Notice https://lakewoodalerts.com/cracking-down-businesses-fined-for-credit-card-surcharge-without-proper-notice/
  • Texas Updated 2020 – https://faq.sll.texas.gov/questions/9631Senate Bill 560, which went into effect on September 1st, 2017, changed the laws relating to credit card surcharges. Previously, the Office of Consumer Credit Commissioner (OCCC) enforced the law on credit card surcharges, but that is no longer the case.
  • Florida update https://www.epgdlaw.com/are-credit-card-surcharges-legal-in-florida/
  • California update
    https://oag.ca.gov/consumers/general/credit-card-surcharges
  • January 10, 2019 NY Update
    https://www.natlawreview.com/article/parties-case-challenging-constitutionality-ny-no-credit-card-surcharge-law-jointly
  • NY Court of Appeals issues interpretation of no surcharge law  https://www.consumerfinancemonitor.com/2018/10/26/ny-court-of-appeals-issues-interpretation-of-ny-no-credit-card-surcharge-law/
  • 2018 Florida https://www.nbc-2.com/story/40273084/you-can-legally-be-charged-extra-for-using-a-credit-card
  • 2018 case in California http://delfinomadden.com/credit-card-surcharge-ban/
  • 2017 US Supreme Court & NY https://www.usatoday.com/story/news/politics/2017/01/10/supreme-court-new-york-credit-card-surcharge-price-speech/96391718/
  • http://fortune.com/2017/03/29/credit-card-charges-supreme-court-freedom-speech/
  • http://www.orlandosentinel.com/business/consumer/os-nsf-florida-credit-card-surcharges-20160706-story.html
  • https://www.ncsl.org/research/financial-services-and-commerce/credit-or-debit-card-surcharges-statutes.aspx

State statutes on surcharge laws

  • https://portal.ct.gov/DCP/Legal/Credit-Card-Surcharge
  • https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXX/Chapter140d/Section28a Massachusetts statutes.

For more information, see Surcharge law resources under Merchant Alerts & Rules Links or contact your acquirer for accurate and current information specific to your situation. Neither Christine Speedy nor this web site provide legal advice. Consult an attorney for all your legal questions.

Does your company want to surcharge? Call Christine Speedy right now at 954-942-0483, 9-5 ET for a compliant solution. Please share your surcharge insights for others and ask any questions below. The information herein is based upon public information available at the time written and may change.

3D Merchant Services is rebranding as Greater Good Tech.

Microsoft Dynamics 365 Embedded Payments Solution Featured in Digital Transactions magazine

Embedded payments are exploding and U.S. Bank has embedded payment solutions within Microsoft Dynamics 365. “The Rise of Embedded Payments“, in DIGITAL TRANSACTIONS January 2023 issue, highlights U.S. Bank’s embedded payments solutions and benefits for both sellers and buyers. The U.S. Bank AP Optimizer® was announced last year. Additionally, Elavon Inc.’s payment gateway provides a secure and end-to-end accounts receivable payment solution for Dynamics 365 Finance. Elavon, a wholly owned subsidiary of U.S. Bank, has been a global leader in payment processing for more than 30 years.

Looking for Microsoft D365 secure payment processing solutions? Call Christine Speedy, 3D Merchant services founder, for simple solutions to B2B transaction problems. 954-942-0483, 9-5 ET.

FTC Orders an End to Illegal Mastercard Business Tactics and Requires it to Stop Blocking Competing Debit Card Payment Networks

Company violated the Durbin Amendment to the Dodd-Frank Act and Fed regulations, agency alleges

The Federal Trade Commission is ordering an end to illegal business tactics that Mastercard has been using to force merchants to route debit card payments through its payment network, and is requiring Mastercard to stop blocking the use of competing debit payment networks.

Under a proposed FTC order, Mastercard will have to start providing competing networks with customer account information they need to process debit payments, reversing a practice the company allegedly had been using to keep them out of the ecommerce debit payment business and, according to the FTC, that violated provisions of the 2010 Dodd-Frank Act known as the Durbin Amendment and its implementing rule, Regulation II.

“This is a victory for consumers and the merchants who rely on debit card payments to operate their businesses,” said Holly Vedova, Director of the FTC’s Bureau of Competition. “Congress directed the FTC to enforce this part of the Dodd-Frank Act and prevent precisely this kind of illegal behavior. We take this responsibility seriously, as demonstrated by our action today.”

Debit Card Payment Networks

With more than 80 percent of American adults carrying at least one debit card and over $4 trillion in debit card purchases made every year, debit cards occupy a significant place in the current payment landscape. The popularity of debit cards has been growing especially quickly for purchases consumers make using their personal devices equipped with ewallet applications such as Apple Pay, Google Pay, and Samsung Wallet.

Payment card networks play a critical role in those debit card transactions. When a customer presents their debit card to make a purchase, the network transmits the payment information to the card’s corresponding bank for approval, and then transfers the payment approval or denial back to the merchant. Payment card networks compete for the business of banks that issue cards and for the business of merchants that accept card payments.

Mastercard, along with Visa, is one of the two leading payment card networks in the United States. The processing fees charged by networks total billions of dollars every year, affecting every purchase made with a debit card, according to the FTC. Most of these fees are paid by the merchants to the card-issuing banks and the payment card networks.

To spur more competition among payment card networks, Congress enacted a provision of the 2010 Dodd-Frank Act known as the Durbin Amendment, which required banks to enable at least two unaffiliated networks on every debit card, thereby giving merchants a choice of which network to use for a given debit transaction. The Durbin Amendment—along with its implementing rule, Regulation II—also bars payment card networks from inhibiting merchants from using other networks.

Mastercard’s Illegal Tactics

With the post-Durbin rise of debit ecommerce and ewallet debit transactions, Mastercard was flouting the law by setting policies to block merchants from routing ecommerce transactions using Mastercard-branded debit cards saved in ewallets to alternative payment card networks, including networks that may charge lower fees than Mastercard, the FTC alleged.

Specifically, Mastercard used its control over a process called “tokenization” to block the use of competing payment card networks, the agency alleged. Transactions commonly are “tokenized” by replacing the cardholder’s primary account number with a different number to protect the account number during some stages of a debit transaction.

Tokens are stored in ewallets such as Apple Pay, Google Pay, and Samsung Wallet and serve as a substitute credential to provide additional protection for a cardholder’s account number.

When a debit cardholder makes a debit purchase using an ewallet, the merchant receives a token from the cardholder’s device and sends it to the merchant’s bank, which in turn sends the token to a payment card network for processing. For the transaction to proceed, however, the network must be able to convert the token to its associated account number.

Mastercard’s policy requires use of a token when a cardholder loads a Mastercard-branded debit card into an ewallet, while banks issuing Mastercard-branded debit cards nearly universally use Mastercard to generate the tokens and store the corresponding primary account numbers in its Mastercard “token vault,” the FTC alleged. Since competing networks do not have access to Mastercard’s token vault, merchants are dependent on Mastercard’s converting the token to process ewallet transactions using Mastercard-branded debit cards.

According to the FTC, Mastercard refuses to provide conversion services to competing networks for remote ewallet debit transactions (i.e., online and in-app transactions, as opposed to in-person transactions made by the customer in a store), thereby making it impossible for merchants to route their ewallet transactions on a network other than Mastercard.

Under the FTC consent order, when a competing network receives a token to process a debit card payment, Mastercard is required to provide them with the customer’s personal account number that corresponds to the token. The order also bans Mastercard from taking any action to prevent competitors from providing their own payment token service or offer tokens on Mastercard-branded debit cards and requires Mastercard to comply with provisions of Regulation II.

The Commission vote to issue the administrative complaint and to accept the consent agreement was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.

The Federal Trade Commission works to promote competition, and protect and educate consumers.

U.S. Bank’s first embedded payment solutions as part of Microsoft collaboration

One of the first banks to directly embed its own payment tools within Microsoft Dynamics 365, U.S. Bank delivers easy-to-implement, efficient payment capabilities.

MINNEAPOLIS (October 31, 2022) – U.S. Bank has embedded payment solutions within Microsoft Dynamics 365, the first of a strategic collaboration established to embed U.S. Bank payment capabilities across Microsoft platforms. The integration helps meet businesses where they are, with secure, fast and easy-to-implement payment capabilities.

U.S. Bank is one of the first banks to embed its own payment tools directly within Microsoft Dynamics 365. The direct integration into the enterprise resource planning (ERP) and finance solution makes it easier for businesses to click and start using the capabilities quickly. U.S. Bank has several more capabilities in the pipeline to embed additional payment tools within workflows across Microsoft platforms including Microsoft Teams and Microsoft Power Platform.

“We are committed to meeting clients wherever they are in their digital journey, bringing payments to businesses in a way that’s instant, embedded and connected to the technology they use every day,” said Shailesh Kotwal, vice chair and head of Payment Services, U.S. Bank. “Our integration with Microsoft – which businesses rely on daily to serve their customers – opens new possibilities for U.S. Bank clients to improve efficiencies and enable faster payments.”

“Embedded payments can deliver powerful, new ways for businesses to streamline processes, enhance visibility, deliver better experiences, and reduce risk,” said Bill Borden, Corporate Vice President, Worldwide Financial Services, Microsoft. “We are excited to build on our work with U.S. Bank, delivering integrated, easy-to-use digital payments capabilities to our customers through Microsoft Dynamics 365 with additional embedded solutions to come.”

Businesses using Microsoft Dynamics 365 can now easily use U.S. Bank AP Optimizer® directly from their business application. This will enable treasury management departments to automate invoice processing for business and consumer payment disbursement within Microsoft Dynamics 365. The solution allows for automated accounts payable workflows, including matching and reconciliation.

With Elavon’s Payment Gateway also now available to use within Microsoft Dynamics 365, businesses can easily enable a secure and end-to-end accounts receivable payment solution with their ERP. Directly integrated with the payments journal for accounting within Dynamics 365 Finance, the solution helps companies automate more of the accounts receivables process, speed up collections through multiple payments acceptance channels, and reduce errors.

Contact:

Todd Deutsch, U.S. Bank Public Affairs & Communications todd.deutsch@usbank.com | 612.303.4148

About U.S. Bank

U.S. Bancorp, with approximately 70,000 employees and $601 billion in assets as of September 30, 2022, is the parent company of U.S. Bank National Association. The Minneapolis-based company serves millions of customers locally, nationally and globally through a diversified mix of businesses: Consumer and Business Banking; Payment Services; Corporate & Commercial Banking; and Wealth Management and Investment Services. The company has been recognized for its approach to digital innovation, social responsibility, and customer service, including being named one of the 2022 World’s Most Ethical Companies and Fortune’s most admired superregional bank. Learn more at usbank.com/about.

Federal Trade Commission Proposes Small Business Protections Against Telemarketing Tricks and Traps

Agency Also Seeks Public Comment on Combatting Tech-support Scams and Adding Click-to-Cancel Requirements

April 28, 2022

The Federal Trade Commission today proposed extending protections against telemarketing tricks and traps to small businesses and strengthening safeguards against other pernicious telemarking tactics plaguing consumers. The agency is seeking comments on updates to the Telemarketing Sales Rule that would protect small businesses against business-to-business telemarking schemes, address tech-support scams that target seniors, and extend click-to-cancel requirements to telemarketing. 

“Today we are taking aggressive action to protect small businesses and consumers from telemarketing tricks and traps,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We look forward to hearing from the public about how we can further strengthen this rule to hold telemarketing scammers accountable.”

Both the notice of proposed rulemaking and advance notice of proposed rulemaking announced today stem from the Commission’s regulatory review of the Telemarketing Sales Rule and address public comments the FTC has received as part of that review.

The current regulatory review of the Telemarketing Sales Rule began with the publication of a 2014 Federal Register notice seeking comments on general issues such as whether to retain, eliminate, or modify the rule. It also sought comment on specific issues, such as whether the rule should provide additional protections to consumers from telemarketing calls involving use of previously acquired account information and negative option offers, as well as recordkeeping requirements for sellers and telemarketers.

The Telemarketing Sales Rule

The FTC’s Telemarketing Sales Rule became law in 1995 and applies to virtually all “telemarketing” activities, both in the United States and international sales calls to consumers in the U.S. With several notable exceptions, the rule generally applies only to outbound calls made by telemarketers to consumers and protects consumers in a range of ways. For example, the rule requires telemarketers to make certain disclosures and prohibits misrepresentations during sales calls.

The Telemarketing Sales Rule ensures that telemarketers obtain a consumer’s authorization before billing or collecting payment, and prohibits telemarketers from requesting advance payments for services, such as credit repair, “guaranteed” loans, and debt settlement programs. The rule also prohibits credit card laundering by or on behalf of telemarketers and generally prohibits them from calling phone numbers on the Do Not Call Registry or plaguing consumers with robocalls, among other things.

Proposal to Protect Small Businesses and Strengthen Enforceability

The notice of proposed rulemaking announced today proposes amending the recordkeeping requirements of the Telemarketing Sales Rule and prohibiting deception in business-to-business telemarketing calls. Specifically, the notice seeks public comment on:

  • Business-to-business schemes: Whether the FTC should amend the Telemarketing Sales Rule to prohibit misrepresentations in business-to-business calls, as the Commission’s experience has shown that small businesses continue to be harmed by deceptive telemarketing, and
  • Recordkeeping requirements: Whether the FTC should amend the rule’s recordkeeping provisions to require telemarketers to retain information in seven new categories, such as keeping recordings of robocalls.

Addressing Other Telemarking Tactics and Scams

The advance notice of proposed rulemaking announced today seeks information on a range of issues, some of which were identified during the previous comment period. Specifically, the agency seeks public comment on:

  • Tech-support scams: Whether the Telemarketing Sales Rule should add additional provisions to address the rise in tech-support scams. These are scams where telemarketers trick consumers into purchasing unnecessary computer technology services to fix phantom problems. Generally, telemarketers who induce consumers to call them by placing deceptive internet ads are currently exempt from Telemarketing Sales Rule requirements. The advance notice of proposed rulemaking seeks comment on whether those calls should be covered by the rule.
  • Click-to-cancel requirements: Whether the rule should require telemarketers to provide consumers with a simple notice and cancelation, such as click-to-cancel, when they sign up for subscription plans; and
  • Robocalls and other telemarketing to small businesses: Whether the Telemarketing Sales Rule broadly should stop treating telemarketing calls made to businesses differently from those made to consumers. Generally, such calls currently are exempt from certain provisions of the rule.

The Commission vote approving publication of the notice of proposed rulemaking and advance notice of proposed rulemaking in the Federal Register was 4-0.

The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov.