December 22nd, 2009 by Jamie Estep
Surcharging customers using credit cards is illegal!
Filed in: Merchant Accounts | 7 comments
Visa and MasterCard have long standing regulations preventing surcharging customers for using a credit card. Recently they have allowed discounting for cash purchases (wordsmithing somehow negates the meaning of surcharging???).
I see merchants on a daily basis surcharging for credit transactions, and while I see it more as an inconvenience, the government doesn’t see it the same way. Currently there are 10 states with laws against credit surcharging, California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Some of these states have very easy ways to report businesses that are illegally surcharging, creating a quick path to fines, bad publicity, and lawsuits.
Apart from state laws, all that an angry customer needs to do is call their card issuer and report the business. The issuer passes the message down to the business’s processor, who then tells the business to stop. If more complaints are received, fines are assessed ($10,000 – $20,000 for the first offense), and then the business is shut down and placed on the TMF list by the issuer. They are then prohibited from accepting credit cards by just about every processor in the world until they get off the list.
It’s true that many businesses get away with surcharging for a long time, but I urge any business owner to seriously consider the potential consequences from breaking the surcharging regulations. It may seem like a logical idea from a financial standpoint, but the repercussions can be quick and severe.
is it legal to add a surcharge on debit card purchases
Wrong… There’s a difference between being illegal and being against terms of service. One is law punnishable by fines or imprisonment. The other is a rule punnishable by the closing of your merchant account and the potential adding your business to MATCH. On the other hand, the card associations have little or no labor force dedicated to policing this practice or the practice of requiring a minimum purchase to use a card.
The truth is, processing a debit or credit card as a SIGNATURE transaction falls into the terms of service disallowing surchaging or minimum purchase requirements for most businesses (there are a few where this is allowed as a “convenience fee” but those are not retail businesses). PIN based debit networks DO allow surcharging with the excetion of Maestro (owned by Mastercard) but the practice is exclusive to PIN based debit transactions.
Generally, I’ve learned he fee to cover the “cost to the merchant” passed to the customer is higher than the merchant’s actual cost for the transaction which amounts to a hidden tax on the customer. Unethical, but not illegal. And my opionion is that the true cost to the merchant is likely the lost revenue from customers who shop their competitors where the nickel-diming isn’t taking place. Example: There are 2 Dairy Queen franchises near my home. One charges 50 cents, the other doesn’t. I spend about $10/mo on one trip/mo to Dairy Queen with the kids at the store that doesn’t surcharge. The cost of the other franchisee losing my business? $120/year. Avg customer lives in the market 5 years = $600 lost. Multiply by perhaps 5 customers per month lost to the competitor? Priceless.
Are there any states/markets outside of California in which surcharging pin debit trans has had success?
Do you know of any regional debit networks that do not allow pin debit surcharging?
My opinion is that the true cost to the merchant is likely the lost revenue from customers who shop their competitors where the nickel-deeming isn’t taking place.
I have heard this in the past, but if what your saying is correct, how does the state of California get away with a convenience surcharge for paying property tax with a credit card?
Government entities are extremely hypocritical. They basically told Visa and MasterCard that they can surcharge, and then most state governments just passed a law to make it official. Right now the organizations that can charge are some government offices, utilities, and some other related services.
Is there also a prohibition against surcharging for business to business transactions?