A Guide To Credit Surcharge Programs For Your Small Business

Shubham Kumar Shubham Kumar
Apr 1, 2021 4 min read
A Guide To Credit Surcharge Programs For Your Small Business

For small businesses that are struggling to survive in the economic fallout brought by the global pandemic, keeping costs at bay and increasing savings is key. There’s also been a huge uptick in credit card transactions as people are avoiding using cash since it’s one of the possible ways for the virus to spread. Also, the credit card interchange fees charged for every transaction can have a significant effect on their bottom line.

One of these fees is credit surcharge fees. But having programs tailored specifically for small businesses could be quite complicated. This guide will shed light on the card association rules and state laws for surcharging, how much you can charge, and other things you need to know before deciding to join credit surcharge programs. However, if you want to know more about credit surcharging, you should click to find out more or consult experts if you want to be more thorough.

What Are Credit Card Surcharge Fees?

You can collect a surcharge fee on the credit card transactions of your customers by adding a small amount to cover your expenses for processing their payment. Instead of shouldering this cost, it’s the customer paying via credit card to absorb the costs that don’t apply to other payment methods. This process is also commonly known as ‘zero-fee’ or ‘free’ credit card transaction processing fee.

Another common practice is cash discounting. This is where a customer would receive discounts that would amount to the cost of processing a credit card transaction if they pay in cash, debit card, or check.

Although both of these methods aim to pass on the fees for processing credit card transactions onto the customer, there are only two significant differences between them. The former is designed to add a small fee to the price of the product or service when they use a credit card, while the latter deducts the cost from the bill if they use other payment methods. Also, cash discounting is legal in almost every state in the US, while credit card surcharging is still not allowed in some areas.

Credit Card Surcharging Laws That You Need To Know

Before knowing about the basic guidelines set by card associations for surcharging, you need to know if it’s legal in your area. So, you need to read about the state laws where you’re operating your business.

These are some of the states with laws that ban credit card surcharging:

  • Florida
  • Maine
  • Oklahoma
  • California
  • Utah
  • Texas

Meanwhile, these are some of the states and territories where surcharging isn’t allowed:

  • Colorado
  • Kansa
  • Connecticut
  • Massachusetts
  • Puerto Rico

If you own a business that’s operating in the areas listed above, charging your customers for credit card transactions is illegal. But you can still give a discount to customers who are willing to pay through cash or check. So, you could encourage your customers to pay in cash by offering a discount, which would make them more willing to forego paying through credit card—a win-win situation.

Also, two states require businesses to provide disclosures to the surcharging fees–New York and Maine. In both jurisdictions, you need to let the customer know how much they’ll be charged when paying in cash as well as through card by using monetary denominations, like dollars and cents instead of a percentage. Still, you’re required to notify customers at the point of sale machine about how much the surcharge fees are based on the rules set by Mastercard, Visa, Discover, and American Express.

Basic Rules On Credit Card Surcharging

Once you’ve determined if it’s legal to require a surcharge fee in the state where your business is located, there’s still much that needs to be done before starting. You need to know which cards your establishment accepts since this will play a crucial role in your policies. If you accept Visa, Mastercard, American Express, Discover, or any other cards, you need to follow the guidelines concerning surcharging set by these companies. So, you should meet all of the requirements they’ve set before charging your customers.

You’ll discover that these card companies are very strict in imposing their rules to make sure customers aren’t discouraged to use their cards for payments and switch to another brand. But, fortunately, most of them have roughly the same guidelines concerning surcharging:

  • You must send a letter to inform the card company and the merchant services provider that you want to use at least a month in advance.
  • The surcharge fee should be limited to your actual credit card transactions, which are usually set at a maximum of 4%.
  • You must inform your customers about this policy by posting a notice at your business’ entrance or the point of sale. The same rules also apply for e-commerce companies, but they’re only required to place these notices at the checkout page of their site.
  • You need to include the surcharge fee as a line item on receipts. It also needs to be incorporated in the network authorization settlement and request.
  • For Visa and Mastercard cards, you can pick and apply brand-level or product-level surcharges. This way, you could either charge all credit cards from a certain brand or only certain ranges of cards. But you can’t cover both.

Conclusion: Should You Add A Credit Card Surcharge Program For Your Small Business?

Imposing credit card surcharge fees have been gaining more popularity in the past few years as legislative changes and court decisions have made it easier to put them into practice. The economic uncertainty brought by the global pandemic has also been the main driver for many small businesses to adopt them. But there are still some states and territories that prohibit businesses in their jurisdiction to charge customers with this fee.

Still, the question remains whether you should impose a surcharge or not. There are some guidelines that you should follow before starting this practice in your business. Also, you need to meet the strict requirement imposed by credit card associations. But these requirements and rules are relatively easy to follow and are quite similar across the board, although the process can take some time.

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