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Issue: 55 - Jul 15, 2013
Making Sense of the New Credit Card Surcharge Rules
By: Accelerated Payment Technologies
Accelerated Payment Technologies

As a result of a multi-billion dollar class-action lawsuit against the major card brands, a new law went into effect on January 27, 2013 that allows merchants the option of passing merchant services fees on to consumers. 

Not surprisingly, as one looks at the implications, rules, and strategic considerations, things quickly get complicated.

Is it in merchants’ best interest to gain some fee relief by charging customers for the privilege of paying by card?  What will be the customer reaction?  How did we get here in the first place?

The new law is the result of a successful class-action brought against Visa, MasterCard and the other major card brands.  Merchants collectively won $8.55 billion as well as the right to pass payment processing costs (up to 4 percent) onto consumers in the form of credit card surcharges.

While the possibility of a four percent price hike may seem like a cause for concern for consumers, the reality is card policies and conflicting laws will make it unlikely to be adopted across the board.

Right off the bat, 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas) already have laws against charging more for credit card transactions and Utah, Missouri, Illinois, Hawaii, New Jersey, Pennsylvania, Rhode Island, Vermont, and West Virginia are considering similar bans.

Rules between the card brands complicate matters further. For example the settlement prohibits merchants from discriminating across card networks.  American Express rules dictate that all forms of payment must be treated the same. So, theoretically, if a merchant who accepts Amex wants to apply a surcharge on Visa/MasterCard credit card transactions, they’d have to do the same for debit card transactions.  However, the rules for the surcharge prohibit passing on fees for debit cards or prepaid cards.  The industry is just now attempting to sort out what all of this will mean.

Merchants must also take several steps prior to starting the process of passing surcharges through to customers, including filing notice of intent to charge surcharges with the card brands and processor, taking steps to ensure that customers are charged the appropriate amount, and that surcharges collected do not exceed the applicable merchant fees, and posting notice of intent to surcharge at both the point of sale and the entrance to the store.

Both Visa and MasterCard have issued tables for merchants that indicate the maximum rates to be charged for differing card types cross-tabulated with the merchant type.  The complexity of the table, along with the difficulty of accurately identifying and applying the applicable surcharge as a manual process, further limits the possibility of surcharges to a technology-driven system.

Due to the requirements of the law and the expected reaction from consumers, most industry experts and media reports expect the adoption of surcharging to be quite low.

Accelerated Payment Technologies, along with other merchant services providers in the industry, is assessing the impact of these new rules and monitoring the demand, if any, by merchants to engage in surcharging.  While the new rules have made a media splash, it is not clear yet that there will be any actual impact on businesses. 

More information on surcharging can be found at the Visa and MasterCard websites:

http://usa.visa.com/merchants/operations/surcharging.html?ep=v_sym_merchantsurcharging

http://www.mastercard.us/merchants/support/surcharge-rules.html