A trend is sweeping the nation. That trend is that merchants are getting tired of how much it costs them to accept credit cards. Merchants are beginning to stand up for the right to pass on the costs of accepting credit cards to their customers. By introducing a credit card surcharge to consumers who purchase goods using a credit card, they’re able to cut costs.

Previously state laws and card brand regulations either made it difficult or completely outlawed the practice. However, over the last five years, card brands have dropped or loosened their rules regarding merchants’ ability to surcharge. 

Even so,  it has really only been recently that merchants have started to take notice. This is likely due to the fact that for many years States themselves have banned merchant’s from applying a surcharge for using a credit card.

But, over the last few years, laws have started to change. Merchants in a few states, namely New York and California, have brought to court an argument that they should have the right to inform consumers of the cost involved.

Merchants Can Add Credit Card Surcharge, The Court Says So.

And recently, another state has dismissed a previous ban on credit card surcharges. New York state appellate court has chosen to side with merchants in their right to surcharge customers. The main goal of this ruling is to ensure that merchants are clearly informing customers of the exact cost, in dollars and cents, of a credit card purchase.

This comes on the heels of the same type of actions in three other states. In the last couple of years, Florida, Texas, and California all recently overturned bans, leaving only six states who still uphold bans on surcharges. Many are wondering if the last few states holding out, (Colorado, Connecticut, Kansas, Maine, Massachusetts, and Oklahoma) will be pushed to narrow or overturn their bans as well. Other countries where merchants adding surcharges for credit card payment have become more commonplace include Australia, Mexico, and New Zealand.

Why would merchants want to add a credit card surcharge?

There are indications that merchants in the U.S. are beginning to have more interest in passing on the fees associated with accepting credit cards to their customers. Widespread confusion and a slew of inquiries over the last year prompted Visa to issue guidance to the acquirers with a reminder that they must abide by Visa rules first when offering these types of programs to their merchants.

But some say this isn’t the retail community’s main goal. A spokesman with the National Retail Federation has pointed out that while the ruling has clarified what merchants are legally able to do..” by and large the retail industry has no interest in surcharging. We’re trying to get swipe fees reduced so prices that consumers pay would be lower.”

This attempt to pass the burden of accepting credit cards from the merchant and on to the consumers who already reap the benefits of the rewards from the card-issuing companies (miles, cashback, etc.) is a way for merchants to make consumers more aware of the costs.

If consumers have a better handle on how much it costs to pay with this form of payment they may rethink how often they use them. Which, in turn, may encourage card networks, who currently do not have much incentive, to reassess their fees.

When adding surcharges, abide by the rules, or risk merchant account shut-down.

Whether a merchant decides to implement a surcharge program in states where it is legal, or a cash discount program in one of the few states where it’s not, it is important to make sure they are abiding by all of the regulations. There is no reason to risk having the merchant account shut down.

Some of the important points to keep in mind:

  • you may not add a surcharge fee greater than your actual credit card costs
  • any surcharge fee may not be greater than 4%(regardless of your costs)
  • surcharges are not allowed on debit cards or gift cards
  • and, you must refund any surcharge that was charged when processing a customer refund

But, more importantly, do not just go ahead and implement a new surcharge or cash discount program on your own. Specific requirements, laid down by the card brand, must be followed prior to beginning one of these types of programs. Requirements that include minimum disclosure periods, signage, and terminal programming to name a few.

The takeaway here is that merchants would like consumers to be more aware of how much it costs to accept this form of payment. And this allows them to better communicate these costs.

This also makes consumers more aware of just how much the card brands are charging. Which may, in turn, cause them to choose a different form of payment. This would no doubt have a significant impact on the card brands’ bottom line. After all, they go to great lengths to entice consumers to use their cards. One would like to hope this might result in the card brands taking a second look at how high their fees are. And, ultimately, make an effort to lower those fees, but only time will tell.

Get your surcharge and cash discount questions answered.

Bankcard Brokers our goal is to educate merchants on available solutions as well as the laws and regulations surrounding them. All our Payments Professionals have completed their ETA Certification demonstrating they’ve achieved the highest level of education in the industry. This certification ensures that they possess the expertise to recommend the best and most appropriate solution for your business. Don’t hesitate to call Bankcard Brokers today to learn more about your options. “Experience the Bankcard Brokers difference!”