Beginning in January 2014, merchants are now allowed to add an extra surcharge to their credit card transactions and pass on additional fees to their clients. While appealing in theory, merchants should be fully aware of all the rules and regulations – and the potential downsides - before they pass on added fees.
The process to allow merchants to pass on what has been called the ‘checkout fee’ began in November 2012, when the US District Court for the Eastern District of New York approved a settlement with MasterCard and Visa. The settlement has now allowed merchant to charge up to 4% of their fees in order to cover processing costs.
But the downside of passing on this type of surcharge, while not entirely obvious at first becomes clear after reading the rules and considering the ramifications. Above all, customers may decide to go elsewhere if they feel they are paying more to use a credit card. Additionally, industry studies show that when consumers use a credit card they actually spend more money, not less. And finally, if your business operates in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma or Texas, these states have imposed surcharging restrictions.
** For a complete list of rules and regulations visit Visa and MasterCard’s webpages.
For those merchants who do not wish to slog through the rules, below is a summary of what you should know:
1) As a first step, you must inform both Visa and MasterCard that you intend to surcharge your clients 30 days before you commence. This is done on the card association’s websites;
2) Surcharges may not exceed 4% of the total charge;
3) Brick and Mortar locations must disclose that they engage in surcharging both at the entry of their location and at the point of sale. In addition, the final surcharge must be broken out and identified separately on the receipt;
4) Ecommerce merchants have an obligation to let their consumers know that they are surcharging on pages that references credit card brands (e.g. Visa, MasterCard, American Express, Discover, etc.);
5) Surcharges may not be added to any debit or prepaid cards.
Ultimately a merchant should use their best judgment if they chose to surcharge. There is naturally an upside and a downside. The good: merchants can recapture a good chunk of their processing fees. The bad: clients may chose to do their business elsewhere. And perhaps more importantly, if you merchants don’t follow the rules perfectly they could face a world of pain with the associations.
For those who choose to surcharge, they will in all likelihood wish to engage legal counsel to walk them through all the necessary steps.