As More Interest in Surcharging Emerges, So Too Comes Some Clarity on the Rules

Is it a cash discount or a surcharge? Some merchant sales agents may now have a little more insight into the answer to that question.

Some payments industry observers see no distinction between whether a fee is added or removed from a product’s final price to cover the cost of credit card acceptance. That view surfaced Thursday at the Northeast Acquirers Association annual conference in Newark, N.J.

Whether a surcharge is added to the price when paying with a credit card or a discount is provided when paying with something other than a credit card, it is a considered a surcharge, says Evan R. Minsberg, an associate at Venable LLP, a Washington, D.C.-based law firm. The card brands may enable merchants to call it a convenience fee or a service fee, but “in state law, it’s still a surcharge.”

Following a ruling earlier this month in New York allow surcharging on credit card transactions, only six states still ban surcharging. The practical implication of the New York ruling means that surcharging only requires disclosure to the consumer, Jonathan Razi, chief executive of CardX, a Chicago-based payment-technology company that automates compliance with surcharging rules, said in an emailed statement.

In New York, the ruling likely means merchants that surcharge will have to post two prices, one for the no-surcharge price and other with the surcharge, Razi says. “When you think of the real-world perspective, my prediction is that retailers, especially larger ones, will consider it burdensome to post prices two times,” he says.

There may be some merchants, however, that could adopt surcharging, such as those in professional services, like lawyers and consulting services, Razi says. It’s not that challenging to issue an invoice with a surcharge price when paying with a credit card and a price for using other payment types. The card brands’ rules provide guidelines for merchants on surcharging. Merchants cannot apply surcharges to debit card transactions.

Merchants adopting a surcharging program, however, should be aware of an Oct. 18, 2018, Visa Inc. bulletin that stipulates adding a fee “on top of the normal price of items being purchased, then giv[ing] an immediate discount of that fee at the register if the customer pays with cash or debit card, [is] NOT [emphasis Visa’s] compliant with the Visa Rules and may subject the acquirer to non-compliance action.”

The bulletin signals that Visa is serious about enforcing its surcharging rules, says David Leppek, a payment consultant. When Visa is alerted to an infraction it tells the bank sponsor, which then follows up with the merchant, he says.

“As this becomes bigger and bigger in the market,” says Razi, “there will be more enforcement if people cross the line.”