Insights

As part of the settlement between the card networks (Visa and MasterCard) and merchants, the card networks are allowing merchants in the U.S. to impose a “surcharge” for using a credit card.  This rule went into effect on January 27, 2013.  Most large retailers have stated that they will NOT impose a “surcharge” on their customers for using credit cards (it will only upset their customers and drive them to a competitor).  Merchants in certain verticals (e.g. B2B and utilities) will find this change beneficial.

Here’s a check list we’ve put together in the event your company is looking to implement a surcharge or fee to customers for using their credit cards.

General Rules

1. Surcharging only applies to credit card transactions in the U.S. and U.S. territories effective January 27, 2013.  Surcharges are NOT allowed on debit and prepaid cards.
2. Surcharging is prohibited in the 10 States (California, Colorado, Connecticut, Florida, Kansas, Oklahoma, Maine, Texas, Massachusetts and New York).  This prohibition is based on where the merchant is located, not the consumer.
3. The benefits of surcharging (recouping cost of credit card processing costs) must be weighed against the following dynamics – competitive pressures, customer satisfaction, and cost of implementing and managing a surcharge program.

Surcharge Implementation Rules

1. 30 days prior to surcharging, notify Visa and MasterCard
   • Visa – complete following form https://usa.visa.com/merchantsurchargenotification/inquiry.do
   • MC – send email to merchant_surcharge_notification@mastercard.com with following information
     • Merchant Name
     • Merchant Contact Information (address, phone and email)
     • Number of Locations Surcharging
     • Type of Channel (face-to-face, eCommerce, mail order or phone order)
     • Type of Surcharge (brand or product)
2. 30 days prior to surcharging, notify your acquirer/processor
3. Surcharge practice must be clearly disclosed to the customer at the point retail entrance and point of sale (for e-commerce firms, notification must be on your checkout page).  The following elements should be incorporated into the disclosure (samples disclosure statements attached):
   • The Surcharge percentage that is applied to credit card transactions;
   • A statement that the surcharge is being imposed by the merchant; and
   • A statement that the surcharge is not greater than the applicable merchant discount rate for credit card transactions at the merchant.
4. The customer should have the ability to cancel the transaction if he/she does not want to pay the surcharge fee and pay via another payment tender
5. Itemization of the final surcharge amount must be identified separately on the transaction receipt.
6. Surcharge must not exceed the cost of card acceptance with a maximum cap of 4.0%
7. Surcharges cannot be imposed in the following 10 States where surcharges are prohibited by State law – California, Colorado, Connecticut, Florida, Kansas, Oklahoma, Maine, Texas, Massachusetts and New York
8. Merchant can charge different surcharges for different card brands (Visa, MC, AmEx and Discover) up to an amount that equals the effective cost of accepting the credit card products of that brand, up to a maximum of 4.0%.  Beyond different surcharges, merchant cannot discriminate amongst the card brands.

We are curious to see what type of firms will actually implement surcharges.  Please let us know if you intend to charge your customers fees for using credit cards.