Surcharges on card payments?

Treasury Management
October 2013

Credit card transaction fees represent a significant expense to businesses. So when Visa and MasterCard reached an agreement to settle antitrust litigation between the credit card companies and merchants, cutting transaction fees and enabling merchants to surcharge certain transactions, much fanfare accompanied the news. A year later, however, few merchants have initiated surcharging.

"Some merchants have been asking questions about it," says Chad Robins, business risk officer for Capital One Merchant Services (COMS). "But in general, we have seen very limited interest in surcharging."

Know the requirements

Part of the issue is the number of requirements from Visa and MasterCard that must be met before a merchant can begin to surcharge. For example:

  • Merchants must register their intent to surcharge with Visa and MasterCard and their acquirer (e.g., COMS) 30 days in advance of implementing the surcharge.
  • The surcharge applies to credit card transactions only; no surcharging is allowed on debit card or prepaid card transactions. This can pose difficulties at the point of sale in differentiating between a debit and a credit transaction.
  • The surcharge cannot exceed the actual fees.
  • Merchants must prominently disclose that they are adding a surcharge at the store entrance, where the card network logos are displayed, and again at the point of sale and cash register. Disclosures must also be posted on the merchant’s website, if it has one.
  • The surcharge must be itemized on the sales receipt, and the transaction must be transmitted in a format that breaks out the surcharge amount from the amount of the original transaction.

Even if a merchant wants to surcharge, its software provider may not offer the functionality to allow it. "Although Visa and MasterCard have lifted their prohibitions against merchant surcharging, the point-of-sale software providers and the merchant acquirer banks have no mandate to make system enhancements to give merchants surcharging functionality," Robins says.

Adds Henry Gorbet, senior director, head of Product Sales Consulting at Capital One Bank® Treasury Management: "Software providers are in no hurry to make adjustments given the political hurdles surcharging faces."

As of this month, there are 11 states that ban surcharging and other states considering such restrictions. However, a federal judge recently issued a preliminary injunction against the ban in New York, calling it unconstitutional1.

Before taking any steps to implement surcharging, merchants should ask these questions:

  1. What’s the customer reaction going to be?
  2. How do I make sure I am following all the rules of compliance in the disclosures?
  3. What are my competitors doing?

For further guidance on credit card surcharging, contact your Treasury Management advisor.

This article is for informational purposes only, does not constitute the rendering of legal, accounting or other professional services by Capital One, N.A., or any of its subsidiaries or affiliates, and is given without any warranty whatsoever. Normal credit qualifications apply. Products and services offered by Capital One, N.A. © 2014 Capital One.
MEMBER FDIC Capital One is a federally registered service mark. All rights reserved.
1

Digital Transactions, "New York Case Raises Questions About the Future of States' Bans on Credit Card Surcharges," Oct. 9, 2013