Surcharging

Monday, July 23, 2012

For years, Visa & MasterCard prohibited the practice of surcharging: tacking on an additional fee when customers choose to pay with their credit card.

The recent 6 Billion Dollar Settlement has changed all of that. Merchants (in most states) can now assess a surcharge on their customers. The states that are still prohibited (due to State laws) are:

  • CALIFORNIA
  • COLORADO
  • CONNECTICUT
  • FLORIDA
  • KANSAS
  • MAINE
  • MASSACHUSETTS
  • NEW YORK
  • OKLAHOMA
  • TEXAS

As a business owner, it is worth considering WHY Visa prohibited surcharging in the first place:

One of the core tenets of the consumer experience is that the stated price of an item — as advertised — is the actual price paid at checkout. This fundamental consumer protection has been recognized by governing bodies around the world. Visa supports retailers’ choices to offer discounts to consumers who pay with cash or use their debit card with a personal identification number. Retailers can also shop around among competing financial institutions for the best card acceptance prices offered to them, or they can choose to accept only cash or checks. Retailers can implement all sorts of “steering” strategies, such as asking the consumer to pay with a different form of payment. Visa supports all of these options as effective ways for retailers to manage their costs while also protecting the consumer.

Credit card processing fees are a large expense for business owners, so it is no surprise that the ability to surcharge on credit card transactions is being viewed as a WIN by many retailers. We would advise business owners to use caution if they decide to exercise their new surcharging rights! Consider these guidelines:

  • Merchants are only allowed to assess a fee that is equivalent to what they pay to accept credit cards – which in the U.S. is typically between 1.5%-3%.
  • Consumers can only be charged checkout fees for credit card usage. Merchants cannot charge customers for the use of their debit card. (Pin Based Debit transactions can be surcharged)
  • Merchants must provide “clear disclosure” of any checkout fees at their store entry and at the point of sale or on their first page if it is an online environment.
  • The disclosure must list the amount of the surcharge, that the charge is being imposed by the merchant, and that the surcharge is not greater than the costs merchants pay to accept cards.
  • Merchants must provide “clear disclosure” of the dollar amount of the checkout fee on the transaction receipt.

If the goal is to gain repeat and referral customers AND to make a profit, business owners will need to proceed with caution so they can do both without irritating their existing and future customer base.

Cheri Perry 7/23/2012

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