How to Legally Add Credit Card Surcharges to Customer Bills


Merchant fees can be a large business expense. Is there a legal way to add surcharges to customers’ bills to help defray the merchant costs? Yes there is! Quickbooks Small Business Center recently published this article with some helpful advice:

“Until a 2013 class-action settlement changed the rules, business owners were prohibited from adding surcharges to their customers’ bills to help defray the merchant fees charged by credit-card companies. And those fees can add up. Scott Levy, founder of PassThrough, a credit-card processing service, says U.S. businesses pay $55 billion a year in credit card merchant fees. We spoke to Levy about how small-business owners can legally add surcharges when customers pay with a credit card.
Small Business Center: What is surcharging?
Levy: A credit card surcharge is an extra fee that is added to the cost of a good or service for the use of a credit card.

When did it become legal for business owners to add a surcharge to a bill when customers pay with credit cards?
As of January 27, 2013, merchants are able to surcharge Visa and MasterCard credit-card transactions. These credit card companies changed their rules as part of a settlement reached with a nationwide class of Visa- and MasterCard-accepting merchants. The lawsuit alleged, among other things, that the rules prohibiting surcharging were anticompetitive and in violation of the Sherman Act.
Why would a small business consider adding surcharges?
For most small-business owners, merchant fees are among their biggest expenses, right up there withpayroll and rent, and surcharging allows them to better control the expense. For example, when surcharging was prohibited, business owners could either accept credit cards and pay the merchant fees or choose not to accept them. It was a take it or leave it proposition. Of course, most merchants have no choice but to accept plastic because consumers have come to expect that they can use it everywhere. But why should business owners have to pay sky-high merchant fees that pay for their customers’ frequent flier miles and points? Now surcharging merchants can choose to accept credit cards, and those customers who use them pay the fees.
How much money could surcharging potentially save business owners?
Most small-business owners pay around 3 percent per credit-card transaction. Surcharging could put this entire amount right back into their pockets.
Is it legal to add surcharges for all credit payments, including American Express, Discover, and debit cards?
The rules are quite complicated because the networks each have their own sets of surcharging rules, and several states have laws that govern surcharging. It’s best to consult an expert company like ours that understands all the rules, but here are the basics. For MasterCard and Visa credit cards, you can’t surcharge when the customer pays with a debit card, the surcharge can’t exceed the merchant’s cost of acceptance, and in no case can it exceed 4 percent. In addition, you have to disclose the surcharge to customers before they are charged, and then provide them with a receipt that contains a line item containing the surcharge amount. You can’t surcharge some customers and not others or some products and not others. If you are going to surcharge, you have to do it with all MasterCard and Visa credit card transactions.
There is no surcharge prohibition on the Discover card, and business owners can add surcharges to those bills as long as they also surcharge all other credit cards. American Express rules still essentially prohibit surcharging, but those rules were challenged and the parties have reached a settlement. If the court approves the settlement, merchants will be able to surcharge AmEx transactions, too.
Is surcharging legal in every state?
Surcharging is prohibited in nine states: California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Maine, Oklahoma, and Texas. New York had a rule prohibiting surcharging, but a federal judge recently struck the statute down as unconstitutional. As of now, New York merchants can surcharge, but the case is currently on appeal. There are similar challenges underway in California, Texas, and Florida.
Is it necessary to register before implementing a surcharge program?
Yes, merchants need to register with MasterCard, Visa, and their processor. It’s quite simple, and your credit-card processing service should handle this for you.”
Read this entire article and consult with your merchant provider to find out more here:

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