Credit card surcharging is very complex, as the rules cross 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.

What is a credit card surcharge?

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

Card brands agree on this for surcharging:

1. Brand level – Surcharge must be the same fixed or variable for all Brands (example, Visa, MasterCard) credit card transactions;
2. Product level – Surcharge must be the same for all specific Product, for example, signature rewards cards or commercial cards, regardless of issuer or card brand.
3. 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.
4. The Surcharge amount must be submitted separately (in the defined surcharge field) from the Transaction amount in the authorization and clearing message.
5. The receipt must list the surcharge amount separately.
6. If the original transaction has a partial or full refund, the surcharge amount must all be refunded proportionally.
7. 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.
8. 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?

• By rule, must calculate average discount rate for the preceding one month or 12 months. Unless the last month was unusual for your business, you’re better off using the one month method because of rising and or new fees that occur during any rolling 12 month period. Calculate https://3dmerchant.com/blog/credit-card-processing-rates/effective-rate-calculator
• Cannot exceed Maximum Surcharge Cap, which is currently 4%. (My B2B readers would unlikely ever be able to charge 4%. If your effective rate is over 3%, pick up the phone and call 954-942-0483 now.)

Just because somebody offers it doesn’t make it right. Some companies are offering “free merchant accounts” by offsetting fees with 3.5% surcharge. The average B2B company has much lower than 3.5% effective rate so that is a violation of card acceptance rules, subject to penalty. See this article with free tool for calculating your average merchant discount or effective rate.

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
   3. https://www.discoversurcharge.com
   4. 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.

 Where are merchants prohibited from surcharging?

Ten states—California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas—and Puerto Rico have laws on the books that prohibit merchants from charging consumers with surcharges on credit card transactions. However, due to federal and other court rulings, multiple states have backed away from the bans.  New York agreed to allow them in January 2019, as long as certain requirements are met, which already exist in the card network rules. Only Kansas, Colorado, Connecticut, and Massachusetts have bans. The legislative intent in many of these states was to protect consumers, and not to restrict B2B surcharging.

1. In 2015, the 11^th 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:

• 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

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.