Surcharging got complicated: the rules now depend on your state

Say a furniture store adds 3% to every card sale and posts a small sign by the register. That sign can be fine in one state, out of step in another, and against the law in a third.

Surcharging, adding a fee when a customer pays by credit card, is answerable to two sets of rules. Most owners only know about one of them.

Two rulebooks, not one

The card networks allowed surcharging on credit cards in 2013. Their rules set the basics: credit only, a capped amount, and clear notice to the customer. Visa’s current rules rule out debit and prepaid cards and cap the fee at 3% or your cost for that card, whichever is lower. Visa also says merchants must notify their acquirer 30 days before they start surcharging.

States make their own rules on top of that. A few ban credit card surcharges outright, including Connecticut, Maine, Massachusetts and Puerto Rico. Others allow it with conditions.

New York is a good example of the second kind. Since February 11, 2024, a New York business that surcharges must post the highest total price, fee included, not a base price with a note about the fee. The surcharge also can’t be more than what the card company charges the business.

As Peter Michaud, chief payments officer at the payments advisory firm TSG, told Digital Transactions: “Compliance is ultimately the merchant’s responsibility.” Your software vendor or processor may have set the fee up, but New York’s law, for one, puts the penalty on the seller: up to $500 per violation.

The network rules are about to move too

Visa and Mastercard have a settlement with merchants that won preliminary approval in June. It isn’t final yet, and at least one merchant group, the National Association of Convenience Stores, has said it will appeal if it is.

As proposed, it gives merchants more room to surcharge, including surcharging Visa or Mastercard without surcharging other card networks. A merchant could surcharge all of a network’s credit cards or only a specific type, up to 3% or the card’s cost of acceptance, whichever is less. The same agreement says none of that changes a merchant’s duty to follow state surcharging laws. A state ban is still a ban.

What to check this week

If you surcharge today, or are thinking about it, get answers to these:

1. 01Does my state allow it? If you sell in more than one state, ask for each one.
2. 02Does my sign and receipt match my state’s rule? In New York, that means posting the total price with the fee included, not a sign announcing a percentage.
3. 03Is my terminal only surcharging credit? Ask what happens when a customer runs a debit card.
4. 04Did my acquirer get notice? Visa requires 30 days’ notice to your acquirer, the bank behind your processing, before you start. Find out whether that notice went in, and when.

If nobody can answer the fourth one, assume nobody did it.

Surcharging can be a fair way to cover your card costs, as long as the setup matches the rules where you sell. If you want to know what your terminal adds to a sale today, talk to an expert at 770-766-1060.