Surcharge Specifics

28 Mar

Retailers’ demand to pass along to consumers the cost of accepting credit cards has been granted.  Effective January 27, 2013 and as a result of the settlement agreement in In re Payment Card Interchange Fee and Merchant Discount Litigation, Visa and MasterCard revised their Rules to permit merchants to “surcharge” or require cardholders to shoulder the cost of paying with a credit card. There is a lot of buzz in the industry about this development, and rightfully so.  Under what conditions can surcharges be imposed?

First, there are restrictions on surcharging.  The amount the merchant may charge the cardholder is limited to the average discount rate that a merchant pays to its acquirer.  In fact, MasterCard requires a statement to the cardholder that the surcharge is not greater than the merchants’ discount rate.  Further, at least 30 calendar days before assessing a surcharge, the merchant must notify its card processor and the card brands of its intent to do so.

Next, merchants must comply with a few requirements.  Surcharges must be disclosed at the point-of-entry and the point-of-sale.  For on-line transactions, the first page that references credit card brands must include notice of the surcharge.  In addition, the fees must be conspicuously divulged on every receipt – both in store and on-line.  The receipt must show the surcharge amount separately on the front of the receipt in the same type font and size as other items, after the subtotal and before the final transaction amount.  Disclosures must not disparage the brand, network, issuer or payment card product being used.  A request that a consumer use a form of payment with lower acceptance costs does not constitute disparagement.

For e-commerce, mail order/telephone order, and unattended transactions, the cardholder must have the opportunity to cancel the transaction after the disclosures are provided.

Surcharges are permitted only on credit, and not debit or prepaid card, payments.  Terminals that offer a choice for debit transactions in the form of “credit” and “debit” buttons must ensure that debit transactions are not surcharged.

If a surcharged transaction is subsequently credited back to the consumer, the merchant must refund any surcharge assessed on that transaction.  For partial refunds, the surcharge amount has to be pro-rated.  A card issuer is permitted to include the surcharge amount in any chargeback amount, and for partial chargebacks, the surcharge amount must be pro-rated.

Keep in mind that despite this permission, the laws of 10 states ban surcharges.  Eighteen other states are currently considering legislation that prohibits surcharges.  What can an acquirer suggest to a merchant?  The new surcharge rules do not affect the Visa and MasterCard Rules regarding convenience fees, which are still permitted under certain circumstances and which may be an option for merchants.

After all of the hype, it appears that the hard-fought right merchants sought to pass along the cost of accepting credit cards has been won.  Despite this, there has not been a stampede to take advantage of this permission.  A few large retailers have announced that they do not intend to surcharge credit transactions.  Certainly competitive forces are coming into play.  It’s also possible that uncertainty about the requirements set forth above is having an effect, particularly on smaller merchants.


Holli Targan

Attorney & Partner

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