VISA has deployed about 100,000 secret shoppers to crack down on non-compliant surcharging and their penalty fee is $25k per transaction. Merchants should not be surcharging unless they are registered and doing it appropriately.
This is a recent update to the surcharge requirements from the card brands
Effective April 15, 2023, merchants will need to only notify their Acquirers, not Visa, 30 days in advance of assessing surcharges. Additionally, the maximum amount for a credit card surcharge in the U.S. and U.S. territories will be lowered from 4% to 3%. Moreover, clients are also reminded that surcharges are only permitted on credit cards and in U.S. states, U.S. territories or Canadian provinces where surcharges are not prohibited by local law.
Overview:
To assist with the many questions that have been asked on the topic of Surcharge Fees, further clarification is being provided. A surcharge is a fee assessed to a cardholder by a merchant, and is added to a credit card transaction for the acceptance of a credit card. Surcharging is only supported in the U.S. by Visa, MasterCard and Discover (Credit Only).
Surcharge Definition:
A surcharge is an additional payment applied to a sales transaction from a business owner to assist with the costs of the credit card fees.
Be Informed:
Information contained in this Alert is subject to change at any time, and does not, and is not intended to, constitute legal advice; instead, all information, content, and materials noted in this Alert are for general informational purposes only. To the extent it contains links to third-party websites such links are solely for the convenience of our Clients.
Surcharging is prohibited on American Express, Debit (including MC, Visa, and Discover Signature, PIN and PINless) and Pre-paid card transactions.
Only two states and one jurisdiction still outlaw the use of credit card surcharges: Connecticut, Massachusetts, and Puerta Rico. It is encouraged that you review the regulations and guidelines in your own state before submitting for surcharging with the card brands and processor.
Processing Requirements
Amongst other Card Brand requirements, Visa, MasterCard, and Discover require the merchant to register with the card brands to participate in surcharging 30 days prior to beginning to surcharge. Refer to the below links for registration details.
Visa:
https://usa.visa.com/Forms/merchant-surcharge-notification-form.html
Mastercard:
https://www.mastercard.us/en-us/surcharge-disclosure-webform.html
Discover:
Definitions
- Surcharge cap – The maximum allowable surcharge amount cannot exceed 4% of the total sales transaction amount, and must not exceed the merchants’ cost of credit card processing.
- Returns – Surcharge must be returned to the cardholder in full or partial amount on return transactions
- American Express –any merchant who wants to surcharge cannot be entitled for American Express
Disclosure
- Signage – Merchant must display full & clear disclosure of the surcharge amount at the Point of Sale/ Point of Interaction.
- Receipt Requirements – Merchant must ensure receipt displays Sale/Return amount and Surcharge amount separately on cardholder receipt
- State restrictions – Several states prohibit the practice of surcharging. If a merchant chooses to surcharge, the ISO/Merchant is responsible for consulting their legal counsel to understand their specific state rules/allowances and ensure their practices comply with the restrictions (if any) of relevant state law.
- Rates on Surcharging - Surcharging cannot be higher than 4% and has to be the same rate across all card brands.
- Same Transaction - The surcharge has to be rolled into the same transaction - it can't be a separate transaction from the purchase of the good/service.
Surcharge Notice for new York State Merchants
New York State recently passed legislation that impacts any merchnt who assesse a credit card surcharge. The legislation mandates that all New York merchants that surcharge customers must display the maximum price that a consumer may pay for a product, regardless of payment method.
This means the total price displayed should include the surcharge amount.
Please refer to the official website for details: www.nysenate.gov/legislation/
Merchant Surcharge Q and A
What is a payment card surcharge?•
A payment card surcharge, also known as 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.
Is a surcharge a Cash discount?
Cash discount is not the same as surcharging. The difference is what the DEFAULT price is. Cash discount is always okay, so if they want to offer two different pricing options – one for credit cards and a cheaper price for cash (and cash equivalents), that’s fine. It just has to be presented as a DISCOUNT FOR CASH PAYMENT, not a SURCHARGE ON CREDIT CARD PAYMENTS. Merchants should ask themselves if they are presenting it as a fee or as a discount? If they are presenting it as a discount, it is legal in all 50 states AND adds to the consumer’s positive experience.
Can I add a surcharge to card transactions?
Merchants in the U.S. and U.S. territories may add a surcharge to credit card transactions, subject to certain limitations. Merchants who choose to surcharge must follow consumer disclosure and other requirements.
What should I consider when determining whether or not to assess a surcharge on card transactions?
Before choosing to a surcharge, U.S. merchants may want to consider a number of factors, including: The potential impact on your customers’ experience What your competitors might be doing What information must be disclosed to your customers, and howoCost of credit cards and other forms of payment
I am a merchant who intends to surcharge. What is the process I need to follow?
U.S. merchants that intend to surcharge are required to: notify Visa and your acquirer at least 30 days in advance of beginning to a surcharge. A notification form to Visa can be submitted at www.visa.com/merchantsurcharging.oLimit surcharging to credit cards only (debit cards and prepaid cards cannot be surcharged) and limit the amount to your merchant discount rate for the applicable credit card surcharge*.oDisclose the surcharge as a merchant fee and, for both in-store and online transactions, clearly alert consumers to the practice at the point of entry, the point of sale or transaction, and on every receipt. Merchants should also consider whether they comply with all applicable state and/or federal laws. Currently, several states have laws that prohibit or limit surcharging, including Colorado (prohibition effective through 30 June 2022), Connecticut, Maine, Massachusetts, and Oklahoma.oMore information can be found at www.visa.com/merchantsurcharging.
Can I assess a surcharge on both credit and debit card purchases?
No. The ability to surcharge only applies to credit card purchases, and only under certain conditions. U.S. merchants cannot surcharge debit cards or prepaid card purchases.•Can I assess a surcharge on debit card transactions where the debit cardholder chooses “credit” on the point of sale terminal?•No. The ability to surcharge only applies to purchases made with a credit card and only under certain conditions.
Are there limits to the amount I can surcharge?
Yes. U.S. merchants may assess a surcharge on credit card purchases that do not exceed the merchant discount rate for the applicable credit card surcharged*. More information can be found at www.visa.com/merchantsurcharging.
Can I choose to surcharge Visa credit cards and not surcharge other card brands?
Yes, however, merchants typically must surcharge Visa on the same terms and conditions as an equal or higher cost competitor that imposes limits on surcharging.
Am I required to disclose the surcharge to my customers?
Yes. U.S. merchants that surcharge must disclose the surcharge dollar amount on every receipt. In addition, disclosures indicating that a merchant outlet assesses a surcharge on credit card purchases must be posted at the point of entry and point of sale/transaction. Disclosure requirements and sample compliant signage can be found atwww.visa.com/merchantsurcharging.
What laws exist that may relate to surcharging?
Currently, several states have laws that prohibit or limit surcharging, including, Colorado(prohibition effective through 30 June 2022), Connecticut, Maine, Massachusetts, and Oklahoma. I operate stores in multiple states. I understand that state laws prohibit me from surcharging in some states where I operate, but not in others.
Does that mean I can’t surcharge in any of the states where I operate?
No. If a merchant is legally prohibited from surcharging in one state, Visa’s rules do not prevent the merchant from surcharging in other states that allow the practice.
Can I pick and choose what types of Visa cards I add a surcharge to?
U.S. merchants have the option to add a surcharge at the “brand level” to all Visa credit card transactions, or to particular types of Visa credit card transactions at the “product level” (e.g.Visa Traditional, Visa Traditional Rewards, Visa Signature) but not both.
Does the ability to surcharge apply to merchants globally?
No. The rules discussed in this Q&A related to the surcharging of credit cards apply to purchases made in the U.S. and U.S. territories only. Surcharging remains prohibited outside the U.S., with certain limited exceptions. For further information, please visit:https://usa.visa.com/dam/VCOM/download/about-visa/visa-rules-public.pdf.
Where can I get more information about Visa’s rules related to surcharging, requirements for surcharging, and other related information?
Merchants can access this and other information by visitingwww.visa.com/merchantsurcharging. For further information, please visit: https://usa.visa.com/dam/VCOM/download/about- visa/visa-rules-public.pdf. In no event can a merchant assess a surcharge above 4%, even in cases where the applicable merchant discount rate exceeds 4% of the underlying transaction amount. Information provided here is subject to Visa’s operating regulations relating to surcharging.