Credit Card Issues for Businesses: Rules and Best Practices

NEWS | The Towne Law Firm, P.C. (TLF) | April 2022

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Does your business charge guests or customers fees for using a credit card as payment? Can your business recuperate credit card processing fees by charging these fees?

Short Answer: yes, but you must follow specific rules.

Credit card processing fees can be a large percent of a transaction, and the smaller the transaction the more the processing fee stings. So, what can you do? There are two strategies you can choose:  surcharging and discounting. But there are two sets of rules to keep in mind: card brand rules and state law rules.

In surcharging, the business would essentially expose the cost of processing credit cards to the customers and let them choose what payment methods to use, cash or card. Many people assume that charging clients an additional fee for payment processing is illegal or at least slimy or underhanded. The truth is that large card brands like Visa and Mastercard do not tell, and usually do not want their consumers to know the actual cost that generates all of their rewards.

Regarding discounting, this would be where the business owner advertises one price but offers a discount if they pay in some other way besides credit card, such as in cash or ACH. Although, this might seem similar to surcharging, the discount method is often looked upon more favorably by credit card brands and consumers.

So now you have picked one of the methods, but what rules and practices govern?

State law usually specifically discusses surcharging. Although most states now allow vendors to surcharge, it is illegal in Colorado, Connecticut, Kansas, Maine, and Massachusetts. However, even these states can offer a cash discount legally.

Next, credit card brand rules should be considered. Generally, businesses intending to surcharge their customers must notify Visa and Mastercard 30 days in advance of their start date. You must keep in mind that surcharging is only allowed on credit cards. Debit cards, even if they are branded (i.e., Visa or Mastercard) cannot be surcharged. You can never surcharge more than the actual amount it costs you to process the card and it can never be more than 4%. The guest must be notified ahead of time by a fee agreement and signage showing that they can provide another type of payment to avoid the surcharge. You must provide the calculation that shows the total amount with the surcharge added; the customer cannot be required to do their own math. Additionally, the receipt must clearly show the amount of the surcharge.

Credit card brand rules regarding discounting include a requirement to display the actual discount from the full price of the services. A discount is not a service fee or additional fee, which is then removed. The customer must be notified of the possible discount at the time of payment via signage and other forms of communication. Lastly, discounting, unlike surcharging can be applied to both credit and debit cards.

With proper notification and transparency, you can recuperate the credit card processing fees and make customer’s cashless preference more palatable to you as the vendor.

Written by: TLF Partner Christine E. Taylor, Esq.


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