Credit Card Surcharges: What Banks and Acquirers Need to Know

Merchants are actively seeking ways to decrease operating expenses in the current inflationary climate and hold onto more margin. One option that’s getting more attention is adding a credit card surcharge to help control payment processing fees.

A credit card surcharge is an added fee merchants charge when a customer pays with a credit card, effectively passing all or a part of payment processing costs onto the consumer. That 3% of a $10 lunch check may not seem like a lot and may not phase the consumer at all. But to a small business that prepares 3,000 lunches each month, those fees could represent a significant part of the profits.

However, even though credit card surcharging can benefit a merchant’s bottom line, many hesitate to implement it because they’re concerned about complying with credit card surcharge laws and rules, or, they might be concerned about their customers’ reaction to see in a surcharge for credit cards on their bill. That’s a merchant-by-merchant decision. When it comes to regulations this is what merchants and acquirers need to be compliant with.

State Laws

Credit card surcharging is legal in most U.S. states, and rules vary. For example, Colorado caps surcharges at 2%, but other states allow more. However, surcharges are prohibited in Connecticut and Massachusetts as well as in Puerto Rico. Merchants operating in these states or this territory have the option of offering a discount to customers who pay with cash or other form of payment, which could incentivize them not to use their credit cards, but they cannot charge an added fee to run a credit card transaction.  

Businesses in all 50 states can also charge convenience fees. These are fees for allowing a customer to make a purchase in an atypical way. A common example is a convenience fee added to a theater ticket purchased online rather than at the box office. However, convenience fees must be related to an actual convenience, not just an added charge.

Card Brand Credit Card Surcharge Rules

In addition to ensuring their businesses follow state rules, merchants must comply with card brand rules for surcharging. Visa updated its rules in 2023, lowering the surcharge cap from 4% to 3%. Also note that surcharges are only permitted on credit cards, not debit or prepaid cards.

The rules state that merchants must notify their acquirer at least 30 days before beginning to surcharge. The rules update doesn’t require merchants to notify Visa—this is covered by using “field 28” in the transaction message sent to Visa. Populating this field with the surcharge amount falls to you to handle for your clients.

Merchants must also disclose their intent to surcharge to consumers, posting information about it at the entrance to the merchant’s location and the point of sale. The surcharge must also be clearly shown on the receipt.

The Importance of Acquirers of Doing Surcharging Right

There’s a financial reason to ensure that your clients who surcharge are doing so compliantly. Visa enforces its surcharge rules, responding to consumer complaints and sending “mystery (or “secret”) shoppers” to visit merchants who surcharge to ensure compliance. As of April 15, 2023, the merchant’s acquirer can receive an immediate $1,000 fine from Visa if they discover noncompliance with surcharging rules. One of these fines is more than enough to offset any benefit the merchant will have gained by doing improper surcharging and they are likely to come back on the acquirer and seek remediation.

However, a strong case exists for taking the role of trusted advisor to help your clients implement surcharging effectively. If their motivation is controlling operating costs, they’ll need guidance to find solutions that streamline processes and save time, in addition to decreasing payment processing costs. For example, partner with Ingenico to give your clients the option of using either the Ingenico Tetra or Axium terminal to easily add a surcharge with just a few clicks.

Acquirers are positioned to educate merchants on options to control payment processing costs, how to compliantly add a surcharge to credit card transactions, and the technology they can use for greater accuracy and efficiency. Take the opportunity to provide this added value to your clients.

For more information on payment technology that supports credit card surcharging, contact us.