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Category: Credit Card Surcharges

  • Credit Card Surcharge Laws by State (as of Sept 2024)

    Credit Card Surcharge Laws by State (as of Sept 2024)

    Credit card surcharges are an additional charge that businesses can impose when customers choose to pay with a credit card instead of cash or debit. This fee helps merchants offset the costs they incur for processing credit card transactions.

    While surcharging has been a hot topic in recent years, Visa is now taking a firm stance against merchants who aren’t playing by the rules. They’ve started secret shopping to catch businesses that are non-compliant with surcharge regulations.

    If caught, these merchants face immediate fines, as Visa believes they’ve provided ample notice about the proper way to apply surcharges.

    Avoid landing in hot water with Visa and other card networks by following our guide for credit card surcharge laws by state.

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    Visa’s Secret Shopping and Fines for Non-Compliant Merchants

    Visa is taking a proactive approach to ensure merchants are following the rules when it comes to credit card surcharges.

    They’ve deployed secret shoppers to visit businesses and catch those who aren’t complying with the regulations. If a merchant is found to be breaking the rules, they’ll face immediate fines, as Visa believes they’ve given plenty of warning about the correct way to apply surcharges.

    So, what kind of mistakes are these secret shoppers looking for? Some common issues include:

    • surcharging debit cards (which is not allowed)
    • failing to display proper signage about surcharges
    • charging more than the maximum allowed amount

    Penalties for non-compliance can range from $1,000 for a first offense up to a whopping $25,000 for repeat offenders. That’s a hefty price to pay for not following the rules!

    It’s important to note that Visa recently lowered its merchant surcharge cap to 3% effective April 15, 2023. This means that businesses can’t charge customers more than 3% extra for using a Visa credit card. Merchants need to stay on top of these changes and make sure they’re always in compliance to avoid those costly fines.

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    Credit Card Surcharge Laws by State

    As of September 2024, most states allow merchants to add a surcharge when customers pay with a credit card. This means businesses can pass along the cost of processing credit card transactions directly to the customer.

    However, there are a few states that still prohibit or restrict this practice. And things are changing fast.

    States Where Surcharging is Prohibited

    While most states allow businesses to add a surcharge when you pay with a credit card, a few states still say “no way” to this practice.

    1. California: The Golden State used to be okay with surcharges, but that all changed on July 1, 2024, when a new law called Senate Bill 478 went into effect. Now, businesses in California can’t charge extra for using a credit card.
    2. Connecticut, Maine, and Massachusetts: These three states in New England have put their foot down and completely banned credit card surcharges.
    3. Puerto Rico: Leave any notion of credit card surcharges at the door. This U.S. territory has also banned the practice altogether.

    States with Specific Surcharge Restrictions

    A couple of states have put their own spin on credit card surcharges. They allow businesses to charge extra for credit card payments, but with a few strings attached.

    1. New Jersey: In 2023, the Garden State passed a law that says merchants can only charge as much as it actually costs them to process your credit card transaction. So, if a business tries to make a profit off the surcharge, they’ll be breaking the law. The new rules also require businesses to clearly display their surcharge policy, so customers know what to expect before they pay.
    2. New York: NY also recently joined the anti-surcharge club. In December 2023, a new law was passed that says businesses can’t charge more than what it actually costs them to process your credit card payment.
    3. Washington: The state is considering a bill that would give the green light to credit card surcharges, but only if the business offers at least one way to pay that doesn’t have any extra fees. This means that if a store wants to add a surcharge for credit cards, they’d need to have an alternative payment method available, like cash or debit, that doesn’t come with a surcharge. The bill is still pending, so we’ll have to wait and see if it becomes law.

    States Where Surcharging is Permitted

    In the majority of states across the U.S., businesses are allowed to add a surcharge when a customer pays with a credit card.

    So, which states give the green light to credit card surcharges? Here’s the list:

    • Alabama
    • Alaska
    • Arizona
    • Arkansas
    • Delaware
    • Hawaii
    • Idaho
    • Indiana
    • Iowa
    • Kansas
    • Kentucky
    • Louisiana
    • Maryland
    • Mississippi
    • Missouri
    • Montana
    • Nebraska
    • New Hampshire
    • New Mexico
    • North Carolina
    • North Dakota
    • Ohio
    • Oregon
    • Pennsylvania
    • Rhode Island
    • South Carolina
    • South Dakota
    • Tennessee
    • Utah
    • Vermont
    • Virginia
    • West Virginia
    • Wisconsin
    • Wyoming

    So, if a customer uses a Visa card, the most a business can charge extra is 3% of the transaction amount, even if the state allows a higher percentage.

    Keep in mind that just because a state allows credit card surcharges doesn’t mean every business will charge them. It’s up to each individual merchant to decide whether or not to add a surcharge.

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  • Visa Mastercard Agree on $30b Settlement – What It Means for Online Merchants

    Visa Mastercard Agree on $30b Settlement – What It Means for Online Merchants

    In a landmark move that could reshape the landscape of credit card processing, Visa and Mastercard have reached a staggering $30 billion settlement with merchants across the United States. This settlement aims to address long-standing concerns over the exorbitant credit and debit card fees that have burdened retailers, particularly small businesses, for decades.

    For online merchants, this settlement could have far-reaching implications, presenting both opportunities and challenges. As the dust settles on this historic agreement, retailers will need to carefully evaluate their pricing strategies and marketing approaches to capitalize on the potential savings and remain competitive in an ever-evolving digital marketplace.

    Settlement Details

    The $30 billion settlement between Visa, Mastercard, and merchants across the United States is a complex agreement that aims to address long-standing concerns over credit and debit card fees. At its core, the settlement seeks to provide relief to retailers by reducing the swipe fees charged by the two credit card giants.

    One of the key provisions of the settlement is the reduction in swipe rates, also known as interchange rates, for a period of three years. During this time, Visa and Mastercard have agreed to lower the fees charged to merchants for processing credit and debit card transactions. Additionally, the settlement ensures that these rates will remain below the current average for a total of five years.

    Another significant aspect of the agreement is the removal of anti-steering provisions, which have previously restricted merchants’ ability to encourage customers to use certain payment methods like debit cards or offer discounts based on the type of card used. With these provisions lifted, retailers will have greater flexibility in implementing pricing strategies that could potentially benefit both themselves and their customers.

    While the settlement promises relief for merchants, it has also faced criticism from various stakeholders. Some argue that the reductions in swipe fees may not be substantial enough to provide meaningful relief, particularly for smaller businesses. Additionally, concerns have been raised about the potential impact on smaller banks and credit unions, which may face challenges in negotiating favorable deals with larger retailers.

    Despite these criticisms, the settlement is widely regarded as a step in the right direction for addressing the long-standing issues surrounding credit card fees. Proponents argue that the potential savings for merchants could lead to lower prices for consumers, increased competition, and a more level playing field for small businesses.

    However, the road ahead is not without its challenges. The settlement requires court approval, which is not expected until late 2024 at the earliest. Additionally, some merchants may object to the settlement, as it would bind them to the terms, even if they believe the relief is insufficient. Further litigation and appeals are also possible, prolonging the settlement process and creating uncertainty for all parties involved.

    Pricing Strategies for Online Merchants

    The Visa Mastercard settlement presents online merchants with a unique opportunity to reevaluate their pricing strategies and potentially pass on savings to customers. With the prospect of reduced credit card fees, retailers have several options to consider, each with its own set of advantages and potential drawbacks.

    Permanent Price Reductions

    One approach that online merchants could take is to implement permanent price reductions on their products or services. By lowering their prices across the board, retailers could potentially boost sales and customer loyalty by offering more competitive pricing.

    This strategy could be particularly appealing to price-conscious consumers and could help merchants gain a competitive edge in the crowded e-commerce landscape.

    Increased Discounts and Promotions

    Alternatively, online retailers could choose to maintain their regular prices but offer more frequent discounts and promotional deals. This approach would allow merchants to retain their existing pricing structure while still providing customers with opportunities to save.

    By strategically timing and promoting these discounts, retailers could drive increased traffic and sales during specific periods or for targeted product lines.

    Perceived Discounts

    A more controversial strategy that some online merchants may consider is the implementation of perceived discounts. This approach involves adjusting listed prices without actually providing real savings to customers.

    While this tactic may attract customers seeking deals, it raises ethical concerns and could potentially damage consumer trust if discovered.

    Maintaining Status Quo

    Finally, some online merchants may choose to maintain their current pricing strategies and simply absorb the potential savings from reduced credit card fees as increased profit margins. This approach could be appealing to retailers who believe that their customers may not be aware of or influenced by the settlement, or who prioritize short-term profitability over potential long-term gains from price adjustments.

    Impact on Small Businesses

    Small online retailers and merchants stand to gain substantially from the settlement’s provisions. By reducing swipe rates and ensuring that they remain below the current average for five years, the settlement aims to alleviate the financial burden of credit and debit card fees, which have long been a source of concern for small business owners.

    Mary Liz Curtin, who owns two businesses in Clawson, Michigan, expressed relief at the settlement, stating, “I am delighted in anything that will ameliorate the situation. I think this is going to help a little bit.”

    For small businesses like Curtin’s, where swipe fees can eat up a significant portion of revenue, the potential savings could translate into increased profitability or the ability to offer more competitive pricing.

    Mike Roach, co-owner of Paloma Clothing in Portland, Oregon, echoed similar sentiments, acknowledging that while the settlement may not drastically change bottom lines, it is “a step in the right direction.”

    Small businesses have long advocated for relief from the high swipe fees imposed by credit card companies, and this settlement represents a positive step toward addressing their concerns.

    Additionally, the removal of anti-steering provisions will give small businesses greater flexibility in implementing pricing strategies and encouraging customers to use payment methods with lower fees, further enhancing their ability to manage costs effectively.

    Regardless of the approach taken by merchants, the settlement represents a step toward addressing the long-standing concerns over credit card fees and their potential impact on consumer prices. By fostering increased competition and pricing flexibility, the settlement could ultimately benefit consumers by providing them with more options and potentially lower costs in the long run.

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  • Credit Card Surcharges: Are They Legal?

    Credit Card Surcharges: Are They Legal?

    Today’s credit card holders are treated like royalty. While some card issuers have their hands in the till by charging high interest rates, some merchants also take advantage of customers by adding exorbitant fees to their purchases.

    For example, retailers might charge a convenience fee or a premium pricing fee to cover the costs of processing card payments. Let’s explore how these surcharges work, where they’re legal, and whether you should pass them on to the customer.

    Different Types of Credit Card Surcharges

    When a customer pays for their goods or services with a credit card, the retailer must pay a processing fee to the issuing bank. This fee varies depending on the type of card used and can range from 1-4% per credit card transaction.

    In an effort to recoup these costs, some retailers choose to add an additional fee onto purchases made with credit cards. These fees can come in the form of a convenience fee, premium pricing fee, or surcharge.

    What is a convenience fee?

    A convenience fee is a fee that’s added to the cost of a purchase when a customer uses a credit card. This could be a payment processing cost simply for being allowed to use your card.

    However, a convenience fee is not a surprise. It must be shown at every stage of checkout. Think about when you go to a gas station. Sometimes there’s a little sticky note on the card reader that says “2% fee @ less than $5”. That’s a convenience fee. Merchants always have to pay a fee when a customer uses their card, but sometimes the amount charged gets eaten up by those fees. A convenience fee is one way to recoup that amount.

    A premium pricing fee is also a fee which is added to the cost of a purchase. However, this fee is added directly to the purchase, as opposed to being a separate charge. This means that it’s not made clear to the customer until they are ready to check out.

    What is a variable rate checkout fee?

    Credit card fees are often a source of contention for businesses. These fees can range from processing fees to payments fees and even surcharge fees, which add a percentage on top of the purchase price.

    There are three main types of surcharges credit cardholders may encounter:

    • Percentage – a fee that’s added to the total purchase price, calculated as a percentage of the transaction amount.
    • Fixed dollar amount – a set fee that’s added to each purchase, regardless of the total cost.
    • Variable rate – adjusts the surcharge amount depending on the overall price of the purchase. This type is uncommon but can be beneficial for merchants as it incentivizes customers to spend more money.

    The type of surcharge you choose depends on what your customers are willing to accept, the price of your products, and the fees your credit card processor charges you.

    When is a surcharge legal?

    Surcharges are legal under federal law. That means across the entire US, it is possible to place an additional fee on top of a customer’s bill. However, it varies depending on state law.

    Connecticut, Maine, Massachusetts, New York, Oklahoma, and Puerto Rico do not allow surcharges of any kind. Florida tried to ban it, but failed at its attempt. Colorado used to prohibit it, but changed its mind and now allows surcharges at a max 2% of the total credit card purchase.

    The limit is 4% of the purchase amount, though many states have a much lower limit between 2% and 3%.

    What are the rules regarding surcharges?

    There are four surcharge rules every merchant must adhere to if planning to implement one:

    1. Disclose all fees prior to the transaction. This means that customers must be aware of the surcharge amount before they commit to the purchase. Signage is the best way to show
    2. List fees on the receipt. The surcharge amount must be itemized as a line item on the receipt so that customers can review it.
    3. Do not place a surcharge on debit cards. This is against the law under the Durbin Amendment. The only form of payment you are allowed to place a surcharge on is credit cards. Even though many debit cards look and act like credit cards, they are different and are exempt from surcharges.
    4. Cap your surcharge at 4%. You cannot charge more than 4% of the transaction amount for any reason. The surcharge cannot exceed the amount charged to merchants by the credit card processor (which is usually around 2.5%).

    Pros and Cons of Adding a Credit Card Surcharge

    Adding a surcharge can be beneficial for retailers. It allows them to recoup the cost of processing card payments and incentivize customers to use alternative payment methods that are cheaper or free for merchants to process.

    However, there are some potential drawbacks. Adding surcharges may result in unhappy customers who feel they’re being taken advantage of, and it could lead to fewer sales as customers opt for cheaper alternatives.

    You can manipulate your payment gateway or POS to place an extra fee on cards like American Express, which is notoriously more expensive to accept, or even more well known card networks like Mastercard or Visa cards. These are called brand-level surcharges.

    Product-level surcharges are extra fees applied depending on the type of product being purchased.

    Additionally, some credit card processors do not allow surcharges on certain card brands or product. Check with your processor to see what’s possible.

    There are both pros and cons to adding a surcharge to a transaction. The trade-off is whether or not the customer will still come back to you for your services.

    Pros of Surcharges

    • Allows retailers to recoup the cost of processing card payments
    • Incentivizes customers to use alternative payment methods that are cheaper or free for merchants to process
    • Can be beneficial for retailers
    • Potential drawbacks should be weighed before deciding to implement a surcharge policy

    Cons of Surcharges

    • May result in unhappy customers who feel they’re being taken advantage of
    • Could lead to fewer sales as customers opt for cheaper alternatives
    • Some credit card processors do not allow surcharges on certain types of cards, or they may charge a fee for each transaction that has a surcharge applied

    Ultimately, adding surcharges is an option available to merchants who gain back some of the credit card processing fees they are subject to. However, the potential drawbacks should be carefully weighed before deciding to implement a surcharge policy.

    Bottom Line

    It depends on the type of business and your target customer. Weigh the pros and cons of adding a surcharge to determine if it’s right for your small business. If you decide to go forward, make sure you are following all applicable laws regarding credit card surcharges.

    Additionally, be transparent with customers about any additional fees that may be incurred. Transparency is key in creating trust and loyalty among customers.

    It’s important to remember that a credit card surcharge is not the same thing as a convenience fee. A convenience fee is charged for services not related to the processing of payments, such as expedited shipping or handling charges. Convenience fees are usually nonrefundable and can vary depending on the service provided.

    If you’re drowning in processing fees and looking to alleviate some of that burden, get in touch with us. We will set you up with a new merchant account linked with a payment processor that supports your business type. With DirectPayNet, you’ll be able to process payments without worrying about exuberant fees.

  • Should You Pass Off Credit Card Surcharges to Customers?

    Should You Pass Off Credit Card Surcharges to Customers?

    It’s no secret that credit card processing fees are expensive, but what about taking a processor’s fees add it as a surcharge fee to your transaction? In this article, we’ll talk about whether you can pass on these costs to customers and what the consequences might be if you do.

    Fees are typically 2-3% of a credit card purchase, but whether you can pass along these fees to customers is often a matter of dispute.

    The cost of credit card processing has been rising for years. Regardless of that fact, not all processing rates are equal. Card brands like American Express has notoriously high fees. And if you’re desperate for a merchant account, the easiest ones to be approved for will absolutely cost you more per transaction. The same goes for high-risk business owners. Lower risk business have lower fees. The higher the risk, the higher the fees.

    Small businesses pay higher rates than large ones due to their smaller purchasing volume and less bargaining power with banks and other processors.

    But who should bare the burden of those fees, customers or merchants?

    Merchants don’t want to give away a portion of potential profits because of a transaction fee. Customers don’t want to pay any additional fee in order to buy something from a merchant. There are arguments for both sides: merchants can make more and pay less, or customers can spend less.

    Mandatory service fees and surcharges are prohibited across the board in 10 states, according to the National Conference of State Legislatures, and in many countries.

    It’s against state law to charge a surcharge or pass on credit card processing costs as an additional fee in the following states:

    • Florida
    • Maine
    • Texas
    • Illinois
    • New York
    • Kansas
    • Oklahoma
    • California
    • Utah
    • Massachusetts
    • Connecticut
    • Colorado

    Canada prohibited charging fees (until now) for accepting credit cards and debit cards at retailers with less than $3 million in annual revenue. If you have more than $3 million in annual revenue and process more than 25 purchases per day using a single payment method (such as cash or cheque), then you’re allowed to charge extra for using credit cards or debit cards.

    Australia has strict regulations about how much merchants can charge for accepting payments by credit card—and there are no exemptions for small businesses here either. If a merchant processes less than AU$1 million worth of credit card transactions per year, they’re not allowed to impose any surcharges at all; otherwise, they must cap their fees at 1% of the transaction value—and even that might seem like too much if your business makes only a few dollars each day through credit card payments. (For comparison’s sake: Visa imposes its own 2% interchange fee.)

    However, there are ways around the prohibitions in these states.

    For example, you can use a different term for what you charge customers. In California, a finance charge is prohibited unless it’s at least 1% of a transaction and disclosed beforehand. But if you call your fee something like “convenience fee” or “processing fee,” then it’s not technically a finance charge under the law and you can charge more than 1%.

    There are also other legal loopholes that may allow you to pass on credit card fees without having to change anything about your business model.

    In states where credit card processing surcharges are banned, most businesses simply create a mandatory service fee that applies to all transactions and state it as an amount on their menus or price lists.

    This is not considered a surcharge by the law because it’s not additional money being charged for using a credit card. It’s just another way of stating the price you’ll pay for your meal at this restaurant—and it’s legally permissible in many areas.

    We see this kind of charge all the time. Go into a gas station and get an automatic $1 charge just to swipe your card. Paying with Discover? That’s an additional 3%.

    Many businesses have a minimum purchase requirement at the point of sale, which is generally accepted by customers. Otherwise, there are other forms of payment like cash.

    Some countries, like Canada, are lifting surcharge restrictions.

    If you’re in Canada, or another of the countries that has lifted surcharge restrictions, then it is okay to pass off credit card processing fees to customers legally.

    For example:

    • In Germany, you can tack on a merchant service fee of one-and-a-half percent on top of your prices.
    • In the Netherlands, there is no limit on how much extra you can charge for using a credit card—but there are rules about how much information needs to be given to customers before they buy something where they’ll have to pay by card.
    • In Canada, legislation is changing where now merchants are able to pass credit card surcharges onto their customers without limit, only requiring signage at checkout.

    What are the consequences of adding a credit card processing surcharge to a customer’s transaction?

    You might think that adding a payment processing surcharge is an easy way to make extra cash. But before you implement this policy, think carefully about the consequences. It’s possible that charging customers more than they expect could lead to a loss of customers, negative reviews, and chargebacks—all of which will have a negative impact on your business.

    In addition to these potential drawbacks, charging customers more than their original unauthorized payment may also be considered deceptive business practice by the Federal Trade Commission (FTC) if you don’t disclose the additional fee upfront.

    Loss of Customers

    If you charge customers more than they expect, they may be less likely to do business with you in the future. They may not understand why they had to pay more than the original unauthorized transaction amount and may feel that their consent was taken advantage of.

    Poor Business Reputation

    Your business could be seen as deceptive. Customers are always willing to report businesses on scam reporting sites, Trustpilot, and social media about their negative experience. Seeing an extra charge on their bank statement won’t look good for your business.

    Increase in Chargebacks

    If your customers feel that they were charged without their permission, they may file a chargeback with their bank. This means that the transaction is reversed and the money goes back to the customer. Chargebacks are costly for businesses, as banks charge fees for processing them.

    The amount you “saved” will be tripled when that chargeback is filed.

    Scenario: What if your processor attempts a customer’s card multiple times?

    Let’s say you operate in Canada and now want to gain back the 2.5% of sales that gets eaten up by processing fees. A customer is at your store’s checkout, enters their credit card details and gets hit with an error, “Something went wrong. Try your payment again.”

    Even though that error occurred, the processing fee was still charged. So who should pay it, you or the customer? It’s not the customer’s fault that your gateway malfunctioned, or that the processor glitched. Even if they entered their credit card details in wrong, should that simple mistake cost them $5?

    Should it be the responsibility of the customer to pay your processing fee, regardless of the processor you use?

    While the processor might be willing to absorb some of the cost of processing, there’s no reason why your customer should have any part in paying for your extra fees. It’s important that you and your merchant account provider are working together to find a solution that works for everyone involved.

    In reality, these surcharges are most likely going to be imposed on B2B transactions, not B2C. Customers won’t understand and won’t be forgiving, whereas other businesses will. There’s always a risk, though. Before you take advantage of this latest change be sure your customers are willing to accept it.

    Need a merchant account and processor with lower fees?

    Though credit card processing fees are common and legal, it’s still important to know federal laws in your state or country. By understanding what businesses can charge customers and how they should do so, you’ll be able to make an informed decision about whether or not to pass a surcharge onto your customers.

    Credit card network fees like interchange rates can’t be negotiated, but your other charges can be. And offering multiple payment options can help reduce the fees you pay, overall, if customers are able to choose a method that costs less to process.

    The bottom line is that you have the choice: risk your business or protect it.

    If you’re currently struggling with high credit card surcharges and interchange fees from Visa and Mastercard, it’s time to open a new merchant account—one with lower fees. Get in touch with the team here at DirectPayNet to pay less in fees and increase your processing potential.