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With inflation cutting into profit margins and hesitant to raise prices, many retailers are considering imposing a surcharge on credit credit card transactions to help offset processing costs. As a result of a legal settlement more than a decade ago, retailers in most states may add a surcharge to credit card transactions, if they meet certain requirements. These requirements are waived if it is a government agency or secondary education facility. Here are the card brand rules you need to know before making a decision about implementing a surcharge. 1. A retailer must notify the card issuing companies (Visa, MasterCard, Discover and American Express) and their merchant acquirer (processor) at least 30 days before the surcharge kicks in. Visa and MasterCard have online notification options: • Visa: www.visa.com/merchantsurcharging • Mastercard: https://www.mastercard.us/en-us/business/ overview/support/merchant-surcharge-rules.html 2. The business must disclose their surcharge policy at the point of entry and at the point of sale before the transaction is completed. If you offer online payment options, the disclosure must appear on the first page that references credit card brands. The disclosure must: • Contain a statement that your business is imposing the surcharge • Include the amount of surcharge • Contain a statement indicating the surcharge is not greater than the cost of acceptance 3. The surcharge amount must be itemized separately and printed on every transaction receipt. 4. A surcharge can’t exceed the merchant’s cost of acceptance for the credit card. Regardless of the merchant’s costs, any surcharge is capped at 3%. 5. Surcharging can only apply to credit card transactions. Debit card and prepaid card transactions cannot be subject to a surcharge, even if the consumer chooses “credit” on the point of sale. 6. If a business imposes a surcharge on one brand of card, they may be required to surcharge other brands on the same terms and conditions depending on each brand’s policies and restrictions. Cash Discount Many merchant processors are offering cash discount programs but are not doing so in line with card brand rules. For a cash discount program to be compliant with card brand rules, the discount must be given at the time of purchase as a reduction from the standard price as displayed. Any program that increases the final bill for payment, if paying with a card, must follow the surcharge rules above. Convenience Fees vs Surcharge Under agreements in place with credit card companies, a merchant is allowed to charge a convenience fee for the convenience of paying through an alternate channel (such as online). The convenience fee must be a flat fee, not a percentage, and must be clearly disclosed to the consumer. Penalties for Non-compliance Credit card companies are clamping down on noncompliant businesses. If a card brand finds out – through secret shoppers, customer complaints or other means - that you’re not following the rules, you can be assessed a perincident financial penalty. The penalty jumps to $25,000 a month for failure to comply after notification. You could also potentially lose your ability to accept credit cards.
With inflation cutting into profit margins and hesitant to raise prices, many retailers are considering imposing a surcharge on credit credit card transactions to help offset processing costs.
As a result of a legal settlement more than a decade ago, retailers in most states may add a surcharge to credit card transactions, if they meet certain requirements. These requirements are waived if it is a government agency or secondary education facility.
Here are the card brand rules you need to know before making a decision about implementing a surcharge.
1. A retailer must notify the card issuing companies (Visa, MasterCard, Discover and American Express) and their merchant acquirer (processor) at least 30 days before the surcharge kicks in. Visa and MasterCard have online notification options:
• Visa: www.visa.com/merchantsurcharging • Mastercard: https://www.mastercard.us/en-us/business/ overview/support/merchant-surcharge-rules.html 2. The business must disclose their surcharge policy at the point of entry and at the point of sale before the transaction is completed. If you offer online payment options, the disclosure must appear on the first page that references credit card brands. The disclosure must: • Contain a statement that your business is imposing the surcharge • Include the amount of surcharge • Contain a statement indicating the surcharge is not greater than the cost of acceptance 3. The surcharge amount must be itemized separately and printed on every transaction receipt. 4. A surcharge can’t exceed the merchant’s cost of acceptance for the credit card. Regardless of the merchant’s costs, any surcharge is capped at 3%. 5. Surcharging can only apply to credit card transactions. Debit card and prepaid card transactions cannot be subject to a surcharge, even if the consumer chooses “credit” on the point of sale. 6. If a business imposes a surcharge on one brand of card, they may be required to surcharge other brands on the same terms and conditions depending on each brand’s policies and restrictions. Cash Discount Many merchant processors are offering cash discount programs but are not doing so in line with card brand rules. For a cash discount program to be compliant with card brand rules, the discount must be given at the time of purchase as a reduction from the standard price as displayed. Any program that increases the final bill for payment, if paying with a card, must follow the surcharge rules above. Convenience Fees vs Surcharge Under agreements in place with credit card companies, a merchant is allowed to charge a convenience fee for the convenience of paying through an alternate channel (such as online). The convenience fee must be a flat fee, not a percentage, and must be clearly disclosed to the consumer. Penalties for Non-compliance Credit card companies are clamping down on noncompliant businesses. If a card brand finds out – through secret shoppers, customer complaints or other means - that you’re not following the rules, you can be assessed a perincident financial penalty. The penalty jumps to $25,000 a month for failure to comply after notification. You could also potentially lose your ability to accept credit cards.