Tuesday, May 01, 2012

Credit Card Surcharges by Merchants - Are They Allowable?

One of our counselors asked: "I have a client who is looking for ways to cut her credit card processing expenses and is considering charging her credit card customers a $1 fee per transaction. I looked into this a couple years back when another client had a similar question and now can’t seem to find that information again. But, I recall that I had discovered that charging such a fee is against the merchant’s agreement with the credit card companies."

This led to a vigorous online discussion. As it turned out, I did address this in the second half of this post, but that was five years ago. Has anything changed? I went to the sources, and included some related issues.

MasterCard Rules (PDF)

5.8 Card Acceptance Requirements (start on p 122)
5.8.1 Honor All Cards
A Merchant must honor all valid Cards without discrimination when properly presented for payment. A Merchant must maintain a policy that does not discriminate among customers seeking to make purchases with a Card. A Merchant that does not deal with the public at large (for example, a private club) is considered to comply with this rule if it honors all valid and properly presented Cards of Cardholders that have purchasing privileges with the Merchant.

5.11 Prohibited Practices (start on p 125)
An Acquirer must ensure that none of its Merchants engage in any of the prohibited practices set forth in this Rule 5.11.
5.11.2 Charges to Cardholders
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount to its customers for cash payments. A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly
permitted in writing. For purposes of this Rule:
1. A surcharge is any fee charged in connection with a Transaction that is not charged if another payment method is used.
2. The Merchant discount fee is any fee a Merchant pays to an Acquirer so that the Acquirer will acquire the Transactions of the Merchant.
5.11.3 Minimum/Maximum Transaction Amount Prohibited
A Merchant must not require, or indicate that it requires, a minimum or maximum Transaction amount to accept a valid and properly presented Card.

This is as I remembered.

Visa International Operating Regulations (PDF)

Merchant Agreement Provisions (PDF p 455)

A Merchant Agreement must also include:

• Transaction processing prohibitions

Honoring Cards (PDF p 507)
General Acceptance Requirements

Minimum/Maximum Transaction Amount (New)
A Merchant must not establish a minimum or maximum Transaction amount as a condition for honoring a Visa Card or Visa Electron Card

Maximum Transaction Amount - U.S. Region
Effective 21 July 2010, a U.S. Merchant must not establish a maximum Transaction amount as a condition for honoring a Visa Card or Visa Electron Card, except for a Transaction conducted with a Visa credit Card issued in the U.S. or a U.S. Territory. Only the following Merchants may establish a maximum Transaction amount for the Card type specified above:
• An agency of the U.S. federal government
• A Merchant properly assigned one of the following Merchant Category Codes:
– 8220, “Colleges, Universities, Professional Schools, and Junior Colleges”
– 8244, “Business and Secretarial Schools”
– 8249, “Trade and Vocational Schools”
Any maximum Transaction amount imposed must not be discriminatory between Issuers or between Visa and another payment network.

Surcharges 5.1.C
A Merchant must not add any surcharges to Transactions, unless local law expressly requires that a Merchant be permitted to impose a surcharge. Any surcharge amount, if allowed, must be included in the Transaction amount and not collected separately. A variance applies in the U.S. Region for the Visa Tax Payment Program.

Surcharges and Taxes - U.S. Region 5.2.F
A U.S. Merchant must not:
• Add any surcharge to Transactions, except as specified for a Tax Payment Transaction. Travelers cheque and Foreign Currency fees and commissions are not surcharges.
• Add any tax to Transactions, unless applicable law expressly requires that a Merchant be permitted to impose a tax. Any tax amount, if allowed, must be included in the Transaction amount and not collected separately.

VISA's regulations, while slightly modified, are largely the same.

What are the consequences? Theoretically, chargebacks and even fines from MasterCard or VISA. Repeated issues could mean loss of the right to accept the cards. The question, of course, would likely come up only if customers complain, or a series of unexplainable charges were noticed, I suspect.

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