Page 26 - GS240302

CoverStory

card brand rules require merchants to notify their mer-
Despite what some might see as chant acquirers 30 days before commencing a surcharging

roadblocks, many agents contend scheme. (Until recently, there was a requirement to regis-
differential pricing is a viable ter with the card brands.)
option, even with the seeming James Huber, partner at Global Legal Law Firm, doesn't
crackdown by Visa. agree the rules are clear. He believes they are deliberate-
ly obtuse. "The surcharge/discount rules are unclear on
purpose to allow only Visa and the issuers to benefit and
squeeze out any margin for the ISOs," he asserted. Huber is
"The result is a patchwork of state laws that again make the lead attorney representing a proposed class of ISOs su-
surcharging impractical," asserted attorneys with the ing Visa over its surcharging and cash discounting rules.
Constantine Cannon Law Firm in a 2021 blog post. Notice
requirements, for example, are strict and widely vary, the "We were promoting cash discounting about two years
attorneys stated. ago, then last year transitioned to dual pricing and worked
toward switching previous cash-discounting merchants,"
The card brands have never hidden their disdain for sur- said Linda Easter Gabriel. She noted that she lost a cus-
charging or, for that matter, any type of differential pric- tomer who didn't want to remove the non-cash adjustment
ing. But they agreed to drop surcharging prohibitions as from his receipts—a non-starter for cash discounting un-
part of a 2013 settlement agreement in a class-action law- der Visa rules.
suit brought against the card brands by merchants years
earlier. Visa has become adamant about compliance with its sur-
charging and cash discounting rules, and this has had the
Then, in 2023, Visa lowered permissible surcharges from effect of rendering a "non-cash adjustment," a common
4 percent to 3 percent, which is lower than the caps placed line item employed in cash discounting programs, in vio-
on surcharges by some state laws, according to some ex- lation of Visa's rules, since the "adjustment" is added to
perts. More recently, Visa published a four-page memo, the total purchase price, a practice that is not permitted by
U.S. merchant surcharge Q and A, that also lays out require- Visa. (Government and educational entities are the lone
ments for cash discounting. exceptions to the added fee prohibition.)

Despite what some might see as roadblocks, many agents The card company also has deployed an army of secret
contend differential pricing is a viable option, even with shoppers to identify merchants with differential pricing
the seeming crackdown by Visa. "It's had no impact," said programs that do not comport with its rules. (Like cash
Bob Nasheim, a Montana-based agent who sells surcharg- discount programs that add non-cash adjustments.)
ing. "As the surcharging rules have been very clear."
"Visa has declared war on differential pricing," Shepherd
To dual or not to dual asserted. "To be fully compliant you need a system that
displays prices side-by-side." Shepherd recounted how
"Most agents today are selling some form of dual pricing," some ISOs have begun printing shelf labels and menus
said James Shepherd, CEO, CC SalesPro. For example, that display dual pricing—cash and card—for fear of see-
Channelle Hill, an agent in St. Petersburg, Fla., said about ing clients caught in a compliance bind.
50 percent of the deals she writes up are for cash discount-
ing. She also sells surcharging. Because, after all, you never know when a secret shopper
might hit a particular merchant. What is known is that
The appeal of differential pricing schemes is obvious. when a secret shopper identifies an errant merchant, it can
Merchants pay little to no processing costs, as processing be costly for that merchant.
fees are passed on to card-paying customers. (Except in
the case of debit cards which cannot be surcharged.) ISO on Visa rules
And agents are attracted to the significantly higher residu- MiCamp Solutions, an ISO based in Arizona, discovered
als. "We earn about 160 basis points, or 1.6 percent on a this the hard way: $70,000 in fines for one merchant's vio-
dual pricing transaction," said Dee Karawadra, CEO at Im- lation of Visa's surcharging rules. While MiCamp, or any
pact PaySystems. "That compares to about 45 basis points ISO for that matter, is free to pass along such fines to cus-
to 65 basis points with traditional merchant pricing." tomers, Huber suggested the fines are for amounts that
could well put small merchants out of business.
Bart Kohler, a Cleveland-based agent, added that mer-
chants really like these "cost recovery" models. The key MiCamp is suing Visa in U.S. District Court for the North-
is to toe the line with the card-brand rules."The issue is ern District of California, alleging violations of state and
that many agents are not helping merchants with compli- federal antitrust law, as well as merchants' free-speech
ant cost recovery models," he said. For example, he added, rights. "By prohibiting certain disfavored speech by mer-
26