Merchants are discovering that assessing surcharges on customer card payments can be a minefield if they don’t comply with card brand rules.
A wrong step can result in a fine. Continued noncompliance can lead to even larger fines, disgruntled customers and, in extreme cases, the loss of card-accepting privileges.
With a growing number of consumers becoming aware of the card surcharging rules and regulations through social media, and calling out noncompliant practices, merchants need to learn the rules and reassess their surcharging programs.
The settlement of a class action lawsuit approved in 2013 gave merchants the legal right to assess surcharges on credit card payments in response to the rising costs of card acceptance. At first, few merchants took advantage, fearing it would scare away customers and reduce sales. But over time, and particularly in recent years, surcharging has become prevalent.
Surcharging is fine, as long as merchants follow the rules established by the card brands — Visa, Mastercard, American Express and Discover — and consider how customers are reacting to the added costs.
But that’s been the problem. Because many merchants don’t know the rules, they are not following them, and for that they are increasingly paying a price.
Common Rules Being Broken
Two common offenses are assessing surcharges on debit, prepaid or gift card transactions — surcharges are only allowed on credit card payments — and exceeding the 3% ceiling on surcharges. Some other rules not always followed include:
- Merchants cannot levy a card surcharge without disclosing it to the customer as a separate line item on their receipt.
- Merchants must display required signage to notify their customers about a credit card surcharge.
- Merchants cannot disguise a surcharge as a cash discount without displaying the credit price on each item. (Many noncompliant programs fail at this because they find it cumbersome to relabel all their inventory or reprint their menus.)
- Merchants are required to notify their acquirer 30 days prior to surcharging.
The Cost of Noncompliance
The odds of merchants getting caught failing to comply with these rules are rising. Any cardholder can file a complaint against a merchant with their card issuer, the relevant card brand, their state attorney general or the Consumer Protection Bureau. In addition, the card brands have begun mystery shopping random card-accepting merchants and imposing fines.
Visa, for instance, may impose an immediate $1,000 fine for a first-time violator. Subsequent violations can incur fines in the tens of thousands of dollars or more. Repeat offenders may be terminated by their merchant provider or risk losing the ability to process card payments altogether.
Other Factors to Consider
In addition to evaluating card surcharging practices in light of existing rules and regulations, merchants need to consider the impact of surcharging on customers.
Will surcharging alienate repeat customers? If you have a surcharging program in place, do you have any idea if you are losing customers because of it? Do you have any mechanisms in place to determine if sales have decreased since you implemented surcharging?
You want to carefully consider these questions and make smart business decisions that will not impact your business in the long term.
Lean on Your Merchant Services Provider
It’s wise to work with a merchant services provider committed to helping you remain compliant with various surcharging rules.
Education is the best protection, and the specialists at Hancock Whitney Merchant Services have the knowledge to help you stay abreast of industry regulations. For more information on surcharging guidelines and requirements, we also suggest you visit www.visa.com/merchantsurcharging
Reach out to your Merchant Services representative to discuss whether surcharging or other related strategies — such as cash discounting, convenience fees or services fees — are right for your business.
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