Credit Card Surcharging: Is It Legal?

What’s in this article?

As a business owner, it’s important to understand the costs associated with accepting credit card payments. One of those costs is the processing fees your business must pay for each transaction. To offset these fees, some merchants choose to implement credit card surcharges. However, the question remains: Are credit card surcharges legal, and can merchants charge a credit card fee? This comprehensive guide will discuss the legality of credit card surcharges, the rules merchants must follow, and alternative approaches to offset processing costs.

Are Credit Card Surcharges Legal?

The legality of credit card surcharges varies depending on the jurisdiction. For example, surcharging is allowed in most states, but there are some exceptions in the United States. The practice is also subject to various rules and regulations imposed by credit card associations, such as Visa, Mastercard, American Express, and Discover. As a merchant, you must be aware of these regulations and ensure that they operate within the bounds of the law.

What States Prohibit Credit Card Surcharges?

Currently, credit card surcharging is allowed in 48 states in the United States. The only states that currently prohibit surcharging are Connecticut and Massachusetts. If you’re Merchant operating in these states, you cannot impose credit card surcharges. Additionally, Puerto Rico also prohibits surcharging.

It’s important to note that several states have had anti-surcharging laws overturned by court decisions, but the laws remain on the books. These states include California, Florida, Kansas, Maine, New York, Oklahoma, Texas, and Utah. If your business operates in one of these states, it’s crucial to stay up-to-date with any changes in surcharging laws.

What Are The Rules and Regulations for Credit Card Surcharging?

In addition to state laws, merchants must also abide by the rules and regulations set forth by credit card associations. These rules vary between card brands, but there are some standard requirements that merchants must follow when implementing credit card surcharges:

1. 1. Notify the card association and the merchant services provider of your intent to impose surcharges in writing at least 30 days in advance
   2. Limit surcharge amounts to your effective rate for credit card transactions, with a cap of 3% (2% in Colorado)
   3. Post appropriate notice inside your store at the entrance and point of sale or on your eCommerce checkout page detailing the surcharge amount and that it does not exceed your processing fees.
   4. Include the surcharge amount as a separate line item on the receipt and in the network authorization request and settlement.

It’s important to note that merchants cannot impose surcharges on prepaid or debit cards, only on credit card transactions.

What Are The Card Brand Guidelines and Regulations for Surcharging?

Each credit card association has guidelines for merchants wishing to implement surcharges. Here’s a brief overview of the guidelines for each major card brand:

• • Visa: Merchants must notify Visa and their merchant services provider in writing at least 30 days before surcharging. They can apply brand-level or product-level surcharges but not both.
• • Mastercard: Merchants must notify Mastercard and their merchant services provider in writing at least 30 days in advance. They can apply brand-level or product-level surcharges but not both.
• • American Express: Merchants do not need to notify American Express of their intent to surcharge as long as they comply with all other rules and regulations.
• • Discover: Merchants must notify Discover and their merchant services provider in writing at least 30 days before surcharging.

How Do I Get Started With Surcharging?

To implement credit card surcharging, you must first ensure compliance with all applicable laws and regulations and the guidelines set forth by the credit card associations. They’ll need to notify their merchant acquirer and the relevant card networks of their intent to start imposing surcharges and then reprogram their payment gateway or processing equipment accordingly.

You should also ensure that the point of sale system or payment gateway accurately calculates and display the surcharge as a separate line item on receipts, network authorization requests, and settlements.

If you’re working with Zenti, get connected with your dedicated account executive who will guide you through all the steps to get you up and running with surcharging!

Are There Fee Saving Alternatives to Credit Card Surcharging?

There are alternative approaches to offset processing costs for merchants who are hesitant to implement credit card surcharges. One such approach is cash discounting, which offers customers a discount for paying with a cash or debit card instead of a credit card. This practice is not considered a surcharge and is legal in all states.

Another option is to negotiate lower processing fees with your merchant services provider or switch to a provider that offers more competitive rates. If on tiered or flat-rate pricing plans, consider switching to interchange-plus pricing, which is more affordable and transparent.

What Are The Pros and Cons of Credit Card Surcharging?

Credit card surcharging can be a viable option for merchants looking to offset the cost of processing fees. However, there are both advantages and disadvantages to this practice:

Pros:

• • Offset processing fees and maintain profitability
• • Legal in most states and territories

Cons:

• • Potentially lost sales and customers due to increased costs for credit card users
• • Requires compliance with state laws, credit card association guidelines, and notification requirements

In conclusion, credit card surcharges can be a legal and effective way for merchants to offset the cost of processing fees. However, you must know the applicable laws, credit card association guidelines, and best practices when implementing surcharges. By carefully considering the pros and cons of credit card surcharging and exploring alternative approaches to offset processing costs, merchants can make an informed decision that best suits their business needs.

So, Now What?

To further lower costs for consumers and merchants, Zenti offers innovative solutions in surcharging. Zenti provides comprehensive payment processing services that help businesses optimize payment acceptance strategies. With their surcharging solution, merchants can pass on the cost of credit card processing to customers while staying compliant with state laws and credit card association guidelines.

Zenti surcharging solution is designed to ensure a seamless and transparent payment experience. By implementing their surcharging technology, merchants can effectively offset processing fees without discouraging customers from using credit cards. This approach allows businesses to maintain profitability while providing customers convenient payment options.

Additionally, Zenti offers competitive processing rates and the flexibility to negotiate lower fees, enabling you to further reduce overall payment processing costs. By partnering with Zenti, businesses can access a range of cost-saving solutions tailored to their specific needs, helping them optimize their financial operations and increase their bottom line.