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:
- Brand level – Surcharge must be the same fixed or variable for all Brands (example, Visa, MasterCard) credit card transactions;
- 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.
- 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
- The Surcharge amount must be submitted separately (in the defined surcharge field) from the Transaction amount in the authorization and clearing message.
- The receipt must list the surcharge amount separately.
- If the original transaction has a partial or full refund, the surcharge amount must all be refunded proportionally.
- 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.
- 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.)
Click here https://3dmerchant.com/resources/rate-calculator/index.htm to calculate your discount rate below with data from your merchant statement. If your American Express fees are on a separate Amex statement (most are), enter sales in the Amex box so they are deducted from total.
See this article with free too for calculating your average merchant discount or effective rate.
- 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.
- Amex- none required
- 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.
- 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 that prohibit merchants from charging consumers with surcharges on credit card transactions. The legislative intent in many of these states was to protect consumers, and not to restrict B2B surcharging. You may want to consult an attorney. Because there are ongoing statute updates as well as legal challenges, this article makes no attempt to pinpoint whether a B2B company can surcharge in these states.
Surcharge Laws Stories:
- 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/
Surcharge law resources
Merchant Alerts & Rules Links
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.