The Green Sheet Online Edition

September 26, 2022 • Issue 22:09:02

A contemporary guide to compliant surcharging

By Nicholas Cucci
Fluid Pay

With merchant credit card fees reaching as high as 3.5 percent per transaction, according to Bankrate, https://bit.ly/3L5PwLH, it's no wonder business owners are hunting for ways to recoup some of these costs. Business owners you serve may be wondering if there's a way to pass these fees on to their customers to help cover this costly business expense.

The answer is yes, they can. One popular solution is to add a surcharge to credit card transactions, but there are rules and regulations that you and your clients need to follow to stay compliant.

A surcharge, also known as a convenience or checkout fee, is an additional fee merchants may charge customers to cover the cost of credit card processing fees. For example, if a customer pays for a purchase with a credit card, the merchant may add a surcharge of up to 4 percent of the sale to help cover the cost of the transaction fee charged by the credit card company.

What are the advantages of surcharging?

There are three main merchant advantages to adding a surcharge to credit card transactions:

1. Increased net sales: Surcharges allow merchants to offset some costs associated with credit card processing fees, which increases net sales.
2. Reduced chargeback risk: A surcharge fee may encourage your customers to use alternative payment methods, such as cash or debit cards, reducing the risk of chargebacks and fraud.
3. Increased customer base: Surcharging makes it more affordable for merchants to accept credit cards as an additional form of payment, allowing them to cater to a broader customer base. According to Fundera, https://bit.ly/3S1LZ3n, credit cards are the preferred payment method for 80 percent of consumers because they offer certain perks or rewards and are considered more convenient than paying via cash or debit.

Are there drawbacks to surcharging?

Merchants need to be aware of potential drawbacks before implementing a surcharge program, including:

1. State laws: Some states prohibit businesses from adding a surcharge to credit card transactions. Be sure merchants verify their state laws before they begin surcharging.
2. Credit card company regulations: Visa, Mastercard, Discover, and American Express each have their own rules and regulations surrounding surcharges. The burden falls on merchants to ensure that they're compliant with all the rules set forth by these companies.
3. Customer dissatisfaction: Surcharges may anger or frustrate some customers, as they may feel that a merchant is being unfair by charging them an additional fee. Be sure merchants communicate the surcharge fee to their customers clearly and concisely to avoid misunderstandings.

Is it legal to surcharge?

In most cases, it's legal for merchants to add a surcharge to credit card transactions. However, surcharging is illegal in Connecticut, Massachusetts and Puerto Rico, for example. So, again, merchants must perform due diligence by researching the rules and regulations set forth by the credit card companies and their state laws to ensure compliance.

Each credit card network has established a unique set of surcharge rules, so make sure your merchants have access to the full guidelines they are required to follow. In general, most credit card companies allow merchants to add a surcharge as long as they adhere to the following guidelines:

• The merchant must clearly disclose the surcharge fee to the customer before the purchase is made.
• Clear signage must be displayed at the establishment's point of entry to indicate a surcharge fee will be applied to all credit card transactions.
• Surcharging is strictly prohibited on debit card transactions.
• A merchant cannot profit from a surcharge. Surcharge fees cannot exceed the merchant's cost of accepting credit cards, that is, the surcharge fee cannot exceed the cost of corresponding credit card processing fees.
• The maximum surcharge percentage a merchant may add to cover their credit card processing fees is 4 percent.
• The surcharge dollar amount must be clearly stated on the checkout page, receipt to the customer and the merchant's copy of the receipt.

• When accepting competing credit card brands (for example, Visa versus Mastercard) the merchant cannot charge a higher surcharge fee for one credit card brand over the other. This applies to all credit card brands.
• Visa and Mastercard require merchants to register their surcharge programs with a written notice 30 days before implementation. This can be done via a Merchant Surcharge Disclosure Form located at https://vi.sa/3RwgVZD and https://bit.ly/3xgTz1Q.

These are general guidelines set forth by select credit card companies and do not include the rules of every credit card network, nor do they include specific state laws in place. In addition, credit card brands may alter their requirements at any time, so it's always best to research the most recent regulations before surcharging.

Nicholas Cucci is the co-founder and COO of Fluid Pay LLC. Cucci is also a graduate of Benedictine University and a member of the Advisory Board and Anti-Fraud Technology Committee for the Association of Certified Fraud Examiners, as a Certified Fraud Examiner himself.. Fluid Pay is the ONLY 100 percent cloud-based Level 1 PCI Payment Gateway processing transactions anywhere in the world. Contact Nick at Nick@FluidPay.com.

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