In the modern business landscape, companies have a plethora of options for accepting payments, with debit and credit card payments being the most prevalent. However, these payment methods come with their own set of complexities, including processing fees, varying card payment networks, and associated costs.
What are Credit Card Surcharges?
Financial institutions impose an interchange charge for processing card transactions. To counterbalance this expense, merchants might choose to apply a credit card surcharge, also termed a “checkout fee”. This additional charge, borne by the customer, covers the interchange fee.
Interchange fees, which differ among credit card providers, are typically a combination of a percentage of the sale and a fixed dollar amount. It’s crucial to understand that surcharges are not intended for profit generation and must not surpass 4% of the transaction’s total.
Convenience Fees vs. Surcharges
Convenience fees are distinct from surcharges. They are additional charges levied by businesses for the “convenience” of utilizing a non-standard payment method. For instance, a business that usually operates in-person but accepts phone order payments might impose a convenience fee. Notably, convenience fees are always a fixed dollar amount and are not applicable to card-present transactions.
Is Debit Card Surcharging Legal?
Surcharging on debit cards and prepaid cards is prohibited, even if the card is processed as a signature-based transaction without a PIN. This limitation was established by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Where is Credit Card Surcharging Prohibited?
Although credit card surcharging and convenience fees are largely legal across the U.S., as of January 2022, there are specific states and U.S. territories where these practices are either illegal or restricted:
- Completely Illegal: Connecticut, Massachusetts, Puerto Rico
- Unenforceable or Limited: California, Florida, Kansas, Maine, New York, Oklahoma, Texas, Utah
It’s worth noting that some businesses might incentivize cash payments by offering cash discounts, which can be an alternative strategy to counteract merchant fees linked to credit card purchases.
Certain states, like Maine and New York, necessitate specific disclosures for surcharging. In these states, merchants must display both the cash payment cost and the card payment cost. Generally, surcharges cannot exceed 4% of the transaction, but Colorado is an exception where the maximum surcharge is either 2% or the merchant discount fee.
Why Implement Surcharging?
Surcharging transfers the credit card processing fees to the cardholder, which can significantly boost a business’s revenue and savings. This strategy can save businesses thousands annually in payment processing fees. Moreover, the relatively minor surcharge fees typically don’t deter customers from making purchases.
Card brands like Visa and Mastercard necessitate retailers to register for surcharging and display a disclosure about the surcharge at the point of sale, online, or on the customer’s receipt. Given the intricacies involved, it’s paramount to utilize a fully surcharge-compliant payment platform, such as Stax, to ensure adherence to best practices.
Choosing a Payment Processor
Payment processing platforms vary in terms of features and offerings. It’s essential to select a partner that aligns with your business needs, especially when considering surcharging capabilities. Stax offers a comprehensive solution, ensuring compliance with state and federal regulations, automated credit card type detection, and a robust data and reporting dashboard.
FAQs about Credit Card Surcharging
- What are credit card surcharges? They are additional fees charged by merchants to customers to offset the cost of interchange fees.
- Difference between convenience fees and surcharges? Convenience fees are for using non-standard payment methods, while surcharges offset interchange fees for credit card transactions.
- Is debit card surcharging legal? No, it’s prohibited under the Durbin Amendment.
- Where are surcharging and convenience fees illegal? As of January 2023, they’re illegal in Connecticut, Massachusetts, and Puerto Rico. Specific disclosures are required in Maine and New York.
- Why implement surcharging? It can save businesses thousands in payment processing fees annually.
For a more in-depth understanding and to explore how you can swiftly implement surcharging, consider exploring Stax’s offerings.