What to Know about Credit Card Surcharging

This article is based on our understanding of applicable rules and regulations at the time of publication. It is not intended as legal or financial advice, only as an educational resource. Please consult your finance and legal teams before making decisions about implementing or changing your credit card surcharging processes.

Accepting credit card payments provides flexibility to customers and speeds up the payment process. Companies weighing these benefits against card processing fees may consider passing fees on to the customer in the form of credit card surcharges. To provide as much flexibility as possible, Enmark recently added support for credit card surcharging to our Enmark Pay application. During that process we gained a deep understanding of the complex requirements involved in surcharging. Specifically, a credit card surcharge is a “% checkout fee” added to a credit card transaction, paid by the cardholder (your customer), to help cover your (the merchant’s) credit card processing fees.

If you currently add a surcharge for customers paying with a credit card, it is important that you consider the following to ensure compliance with both credit card company rules and state regulations.

Surcharging is not allowed everywhere

The following states and regions have prohibited credit card surcharging. If you are located in these areas, you cannot add surcharges for customers paying with credit cards.

• Massachusetts
• Connecticut
• Puerto Rico
• Armed Forces Locations (i.e., states that are AF, AE, and AP)

Credit card companies and many states require specific surcharge disclosures

• Most credit card companies require that purchasers are clearly notified of applicable surcharges. Read, Visa sample surcharge requirements and Mastercard’s Credit Card Surcharge Rules & Fees for Merchants. In most cases, disclosures must be clearly visible at all points of customer interface, including point of entry and point of sale. Also note that disclosure requirements may vary based on your type of business and location.
• Some states have additional disclosure requirements, including requirements to display surcharge prices in advertising. For example, Colorado has specific disclosure language and requirements as defined in Colorado Senate Bill 21-091.

Sales tax and credit card surcharging

Many states that allow surcharging, but not all, require that the surcharge be included in the sales tax calculation (i.e., the surcharge amount is taxed). Consult with a tax professional to determine if and when sales tax is applicable to surcharge amounts.

Surcharges vs. Service/Convenience Fees and Cash Discounts

Credit card providers have strict rules related to what kind of additional fees can be charged when paying with a credit card. Many companies mistakenly add “Convenience” or “Service” fees, not realizing that each type has unique rules that must be followed.

The key difference is that a % fee for paying with a credit card can ONLY be a surcharge. Convenience fees can only be a flat or fixed fee and be for the benefit of a special payment channel (i.e., paying online). Service fees, while optionally a percentage, are limited to special government and educational organizations.

For more information on the different types of fees and their requirements, read the Understanding Surcharging Convenience Service Fees Whitepaper, from our partner, Fiserv.

It is also important to understand the restrictions around cash discount programs. In most cases, cash discount programs require the merchant to increase all of their prices, and then discount off of that price.

There are penalties for non-compliance

Penalties for non-compliance vary depending on the violation, but card networks, like Visa and Mastercard, may issue fines that reach into the tens of thousands of dollars. In some cases, they may even revoke the merchant’s ability to accept their cards as a form of payment.

It is important to know that you, the merchant, are responsible for any fines incurred due to improper surcharging or other practices that don’t meet compliance standards. To avoid penalties, it is essential to understand both the card network rules and any applicable state or local regulations.

This article is intended for information purposes only. It is important to consult finance, legal, and tax experts as applicable for your situation.