27 Mar The Dangers of Surcharging on Credit Card Transactions
Updated on November 3, 2021
What is surcharging?
At first, surcharging sounds straightforward. It’s the practice of charging an additional fee to a customer paying with a credit card. But, in the already convoluted merchant services industry, credit card surcharging might actually be one of the most complicated practices out there.
In recent years, the buzz around surcharging, both positive and negative, has increased immensely. That has small business owners eager to mitigate their processing expenses. Still, surcharging to cut costs might end up costing you more if you’re not clear on what’s allowed and what’s not.
Is surcharging legal?
Surcharging first became legal as the result of a claim brought by U.S. merchants against Visa and MasterCard. As of January 27, 2013, card associations must permit merchants to add surcharges to certain credit card transactions. That means the credit card brands (Visa, MasterCard, and others) cannot forbid surcharging in their guidelines. They can still restrict surcharging to certain parameters. More on that later.
Following the 2013 ruling, many states stepped in to outlaw surcharging. As of early 2021, the following states are enforcing bans on credit card surcharging on the grounds that it’s unfair to consumers:
If your business operations are located in one of these states, it’s illegal to surcharge . . . for now. If your business is considering imposing a surcharge on credit cards, and you’re unsure of the legality of the practice in your state, check with a business lawyer or your state’s Attorney General.
Credit card processing is so expensive! Should my business surcharge?
Unfortunately, determining the legality of surcharging in your state is only the first step. The credit card brands allow surcharging only in certain cases.
First, you can only impose a surcharge on a credit card. Surcharging is prohibited on debit cards. Then, before you can begin surcharging, you must notify the card brands 30 days prior to implementation. Businesses imposing a surcharge must also display signage disclosing the surcharge at the point of entry and point of sale. There are also limits on how much you can surcharge, and some processing equipment is not built to support the practice. Before you decide to start surcharging, make sure you reach out to your processor and read Visa’s Surcharging FAQ for a full list of requirements and restrictions.
Finally, beyond all the hoops you’ll have to jump through to begin surcharging, consumers have made it clear that they do not like the practice.
Americans love their credit cards. Over 459 million cards are currently in circulation. Compare that statistic with this one, revealing that only 2% of Americans would be willing to pay a 2% fee for using their credit card.
The biggest drawback to surcharging credit card transactions might just be the risk of losing customers that feel you’re nickel-and-diming them.
What are the alternatives?
Surcharging is most useful for businesses running on a low-profit margin or processing many, small transactions. If you’re intimidated by all the regulations surrounding surcharging, implementing a minimum purchase amount is a similar, but much less complicated solution.
It’s also worth investigating whether you’re simply paying too much for processing. Give BASYS a call for an apples-to-apples comparison with your current processor. If you’re in a good spot, we’ll let you know. If you’re not, we might be able to help prevent the need to pass costs on to your customers in the first place.
BASYS Processing as a business partner
Does your current processor understand the unique struggles of your industry? Do they provide great rates and personal customer service? Are they offering solutions to grow your business and being proactive about helping you reduce risk and increase your savings?
BASYS Processing features:
• A friendly, live voice will answer the phone when you call; no automated phone systems
• In-house PCI Compliance team to walk you through the process step-by-step, improving security and reducing costs
• Accept payments in person, over the phone or online
• Next-day funding options
About BASYS Processing
BASYS Processing provides credit card and debit card processing services, plus solutions that include terminals, virtual terminals, e-commerce, mobile, and point-of-sale, customized to fit any need. Banks, associations, and software partners depend on us to strengthen their reputations and relationships with their customers by providing remarkable service paired with ultimate flexibility and pricing. Merchants depend on us to make accepting credit cards and debit cards convenient, safe & affordable. BASYS was founded in 2002 on one philosophy: to take care of our merchants, partners, and employees so they never want to leave. We are dedicated to working one-on-one with our customers to design the perfect solution. BASYS is Personal Payment Processing.
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