The subject of surcharging is one that has caused a great deal of confusion in our industry for quite some time. However, because the United States District Court for the Eastern District of New York preliminary approved a proposed settlement agreement in the In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation in November 2012, we are starting to see some clarification from the card associations.
As a result of the settlement agreement, Visa and MasterCard recently changed their Operating Regulations, giving merchants in the U.S. the ability to surcharge credit card transactions beginning January 27, 2013. To help understand the new rules, see the following summary of the rule changes.
A surcharge, sometimes called a checkout fee, is an additional fee that a merchant adds to a consumer’s bill when he or she uses a card for payment.
Here are a few rules regarding surcharging:
1. Surcharging is prohibited on debit and prepaid cards.
2. The surcharge must be the same for all credit card transactions of that brand, regardless of issuer.
3. The surcharge must be no greater than the merchant’s average discount rate for that brand’s credit card transactions.
4. The surcharge cannot exceed 4% in any event.
5. The surcharge must be the same for all transactions of that particular product, regardless of the card’s issuer.
6. The surcharge must be no greater than the merchant’s average discount rate for credit card transactions of that particular product, minus the regulated debit interchange rate (currently 0.05% + $0.22).
For U.S. merchants that accept credit or charge cards from other payment network brands, including American Express, Discover, and PayPal, surcharging practices are subject to a competitive “level playing field” limitation.
If the merchant accepts a competing payment network brand (e.g., MasterCard) that is as or more expensive to the merchant than another brand (e.g., Visa), the merchant may surcharge one brand’s (MasterCard’s) credit cards only in the same way as the merchant would be allowed to surcharge the competing payment network’s (Visa’s) credit card.
If the merchant accepts a competing payment network brand of credit card that prohibits the merchant from surcharging in a particular channel of commerce (i.e. either face-to-face or non-face-to-face), the merchant may not surcharge one brand’s credit cards unless it also surcharges the competing payment network’s credit cards regardless of the cost of that card to the merchant. In this case, the amount of the surcharge on the competing brand must be at least the lesser of the cost to accept the competing brand’s credit cards or the surcharge imposed on the first brand’s cards.
Visa and MasterCard require that merchants who decide to surcharge credit card transactions must satisfy the following notification and disclosure requirements:
1. The merchant must provide 30 days advance written notice to Visa, MasterCard, and the acquirer.
2. The merchant must provide clear disclosure to its customers that it is imposing a surcharge, including the amount, and that the surcharge is not greater than the merchant’s discount rate.
3. The dollar amount of the surcharge must be provided on the transaction receipt.
A merchant can satisfy its disclosure obligation to MasterCard by emailing email@example.com and providing them with your business name, phone number, and merchant number and disclosing your intent to surcharge.
Merchants who choose to surcharge must notify Visa 30 days prior to beginning to surcharge; visit https://usa.visa.com/merchantsurchargenotification/inquiry to notify Visa.
Merchants who choose to surcharge must also notify Arrow Payments 30 days prior to beginning to surcharge.
Please note, there are 10 states have laws that limit or prohibit surcharging. These states include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Please consult your legal advisor to make sure you comply with applicable state and local laws.
Visa has created numerous resources on this topic, including Frequently Asked Questions and other documents that can help merchants decide if they should surcharge their customers. These resources can be found at www.visa.com/merchantsurcharging.
MasterCard also provides additional information on its website at www.mastercard.us/merchants/support/surcharge-rules.html.
If you are curious about implementing surcharging to help offset credit card charges, keep in mind the effects it may have on your particular customer base.
Feel free to contact a representative at Arrow Payments with any questions about surcharging.