Retailers able to charge fee when paying with a credit card

Some US retailers started adding a fee of up to 4 percent on Sunday, January 27, 2013, to recover the fee they have to pay credit card companies. The new fee is the result of a November 2012 federal district court settlement between certain credit card companies and US merchants. During December, Visa and MasterCard sent letters to all retailers alerting them of this new surcharge availability. The fee does not apply to debit or prepaid card purchases and is already illegal in some states. It is also limited to the lower of the dealer’s cost for credit acceptance imposed by the credit card company or the 4 percent cap.

Visa and MasterCard’s websites summarize the new rules for merchants evaluating whether or not to pass along the surcharge. This is a complex change and will to require deep analysis to determine if the retailer wants to comply with the stringent requirements. Below are the website links to begin the process.

View Visa's surcharge details >

View MasterCard's surcharge details >

The first step is to begin the evaluation of whether the merchant wants to pass along the surcharge to the customer. The merchant must notify the credit card company and the acquirer of their intent to surcharge at least 30 days prior to its implementation.

Based on our review of the MasterCard and Visa websites, these rules are far too complex to cover in this brief alert, but we do suggest you explore this new rule change with your credit card processor to see if it right for your business.

Some of the main points of the settlement are the following:

  • Fees cannot be charged for debit or prepaid card transactions.
  • The surcharge must not exceed your cost of acceptance for the credit card.
  • Disclosures must be provided at the point of entry to the store (website) and at the point of sale (register and on line check out), at a minimum.
  • An itemization of the total surcharge amount must be identified separately on the transaction receipt.

Since this settlement was entered into in November, retailers have not had much opportunity to react and prepare for this change. The adjustment is not simple and will require changes to systems, websites, employee education, internal controls, and most importantly, some tactful consumer education at the point of sale.

Currently the following states prohibit surcharging:

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

American Express, Discover, and PayPal were not part of this settlement; therefore, additional surcharges cannot be applied to all credit card transactions.

Consumers have a choice between retailers; consequently, it will be important to understand what your competitors are doing in the market. The largest retailers (Wal-Mart, Target, McDonalds) have already stated that they will not pass the surcharge along to the consumer. A careful evaluation of the market, consumer reaction, and ultimate value to the business will need to be considered.