A credit card surcharge, also known as checkout fee, is an extra fee charged by a merchant when receiving a payment by a credit card which at least covers the cost to the merchant of accepting that means of payment, such as the merchant service fee imposed by a credit card company.
Many people carry credit cards because it is more convenient then carrying loads of cash or writing a check. This convenience usually doesn’t cost you anything but does cost the merchant something. They pay for your convenience. Each time you use your card, they pay a processing fee — typically around 2% of each transaction — to the bank that issued your card. This processing fee that the merchant pays can make it difficult to turn a profit. As a result, they may pass along the cost to you by adding a credit card surcharge. This is an extra fee that’s added onto your transaction.
Rules Regarding A Credit Card Surcharge
Businesses are allowed to impose credit card surcharges made on credit cards, but they’re certain rules they must follow. Card networks Visa and Mastercard settled a dispute with retailers by allowing surcharges in 2013.
But, they still have rules around the practice:
- Limits: The upper limit on surcharges is 4 percent of the transaction.
- Disclosure: There should be a sign at the point of sale. The surcharge should not come as a last-minute surprise.
- Records: The surcharge should be printed on receipts.
- Equal treatment: Merchants aren’t supposed to charge a surcharge on only some cards and exempt others.
These rules, at the same time, don’t apply to debit cards.
New York Bans The Ban
On January 8th, the merchant plaintiffs and the state of New York filed motions to dismiss a challenge to such charges. The court filings this week effectively ended a challenge to surcharges on credit card transactions in New York.
Merchants in New York can indeed embrace those fees, contingent upon stating those costs to consumers up front.
This battle between the merchants and the state of New York has been going on since 2013 when several businesses joined a group and, headed by hair salon Expressions Hair Design in New York, filed a suit in federal court against the state ban on surcharges. The federal court sided with the merchants, but then the case went through a series of appeals. The case finally wound up before the Supreme Court at the beginning of 2017.
It doesn’t stop there. The Supreme Count then sent it back to the Second Circuit, deciding that the case was a regulation of commercial speech. Finally, in October of 2018, the appeals court bench ruled that by listing the total dollars and cents price, merchants could call the difference between card and cash prices “anything they wish.” What’s in a name, then? The court ruled that such terms could range from surcharge to “extra cost.” The motion by the plaintiffs and the state this week means that the case may be dismissed, pending approval of the court itself. The ban of the ban in New York comes on the heels of similar challenges that eliminated bans on passing along credit card surcharges in Florida, California and Texas.
States With No Surcharge Laws
According to the National Conference of State Legislatures, the states with no credit card surcharge laws are:
New York being the 4thstate where surcharges are now unenforceable.
California: As of January 2018, a federal judge held that the surcharge ban could not be enforced as to the businesses which brought that case but did not generally prohibit its enforcement. In more simple terms, California’s surcharge ban was challenged in federal court, and the state cannot currently enforce it. That’s why you may see retailers adding surcharges, even when it’s technically illegal. The Attorney General did state, “Each use of a credit card surcharge would need to be evaluated based on its own particular facts.”
Texas: In August of 2018, a federal judge in Austin ruled that the credit card surcharge ban is unconstitutional. This case was brought to the U.S. supreme court but was then tossed back down to the lower courts. The merchants that challenged the surcharge law used a free-speech argument to win. They argued that their First Amendment right was denied because they weren’t allowed to tell customers about the hidden swipe fees. Now they can say, “This costs xx with a credit card, but xx with cash or debit.” Before, they couldn’t.
Florida: In 2015 a court case arguing that vendors should be allowed to charge a fee made its way to a federal appeals court. They found the statute prohibiting credit card charges was unconstitutional. That means any vendor could feasibly charge a fee for using a credit card. Consumer Rights Law Group’s Giardina said, “yes, a surcharge is allowed (by government), a surcharge is definitely allowed if the utility is a municipal utility and a surcharge is probably allowed if it’s a private company,” he said.
Having the ability to accept credit and debit cards as payment for products and services is essential for online as well as brick and mortar businesses today. Which is where low credit card processing fees come into play. Since many people don’t carry cash in their wallet, they won’t shop at a business that can’t or won’t take their credit card. In order for a business to accept plastic, they need a merchant account. Before entering into a contract with a bank or credit card processor, it’s important to understand credit card processing fees.
Merchants must take these fees into account when pricing their products and services because there’s no way to get around them. While all processors have fees, some of them are much more than others. Understanding the types of fees can help a business owner compare the rates among different companies so they won’t pay too much and have to pass those charges on to their valued customers. Each company has there own fees, which will decrease the profit a merchant makes on each transaction. Finding the company with the best fee structure may take some time but it is definitely worth the effort.
If you’d like to learn more about surcharge fees or want to know if you’re being overcharged by your merchant account, schedule a free consultation with our merchant services team today.