Credit Card Surcharging Now Permitted


By Jenn Matthews, Compliance Specialist, Tiger Payment Solutions

Have you ever been into a store with a sign reading “cash only” or “$10 minimum on credit card transactions”? This is most likely due to the fact that businesses accepting credit cards pay a percentage of every transaction to the credit card companies for processing a payment. Now merchants in all but 10 states have a way to recover this lost revenue by passing through credit card processing fees to their customers at the time of sale.

A recent case against Visa, MasterCard and several major banks is being called the “largest antitrust settlement in history.” The lawsuit began back in 2005 with over 50 claims being made by merchants stating that Visa, MasterCard and their issuing banks conspired to fix the fees that merchants (including fuel oil, propane, and gasoline retailers) pay to accept credit cards. The plaintiffs argued that their actions effectively removed any competition from the market, thus allowing the card issuers to extract exorbitant fees from merchants.

In addition to interest income on late payments by consumers, credit card issuers (those banks that issue credit and debit cards to consumers and businesses) make their money by charging interchange fees. “Interchange” is an industry term used to describe the fees paid by the merchant to a cardholder’s issuing bank for processing a transaction. Interchange rates are publically available and are updated every six months by Visa, MasterCard and Discover. (For more information on interchange rates, please visit

New Options
Although Interchange fees are set by the card brands, they are collected by card processing networks. Fuel Oil and Propane dealers are eligible for Interchange rates as low as 0% but in general, merchants are charged anywhere from 1% to 3% for processing a transaction, depending on the type of card used by the consumer. With surcharging now permitted in most states, these fees may now be passed on to consumers, but must not exceed the average of the prior month’s or prior year’s actual cost of acceptance and are capped at 4%.

Under the terms of settlement, a merchant that adds a surcharge to purchases on a Visa or MasterCard transaction must also surcharge American Express cards if they are accepted. However, American Express has not settled pending litigation and still prohibits surcharging. Therefore, if a merchant wishes to surcharge Visa and MasterCard transactions, they must discontinue acceptance of American Express cards.

There are 10 states that still ban surcharging credit card purchases. They are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Current legal efforts are under way to change the law in these states, and the list is expected to shrink as individual state laws are revised.

Surcharging Rules
Merchants that choose to begin surcharging their customers must follow several new rules set by Visa and MasterCard. Visa and MasterCard must be provided with 30-day advance written notice of a merchant’s intent to surcharge. Also, retailers that surcharge are required to post a notice at the store’s entrance. The exact percentage of the surcharge does not need to be disclosed until the time of sale. In addition, the customer receipt must list the amount of the surcharge as a separate line item. Online stores with a surcharge will not be required to have a notice on the home page but will need to alert shoppers of the surcharge when they reach the page where credit cards are first mentioned. In most cases, this means the final step of checkout when the purchase is being completed.

In addition to these changes in the law, the settlement also has a damages component designed to compensate merchants for fee-related expenses. The damages portion of the class settlement consists of two funds. The first is a cash fund in the amount of $6.05 billion. Any person, business or other entity that accepted Visa or MasterCard credit or debit cards in the U.S. at any time between January 1, 2004 and November 28, 2012 may be eligible to receive a payment from the $6.05 billion fund. The second is a fund equivalent to a portion of interchange fees attributable to certain merchants that accepted Visa or MasterCard credit cards for an eight-month period starting July 29, 2013. This second fund is estimated to be approximately $1.2 billion. (For more information on merchant eligibility or to obtain free claims assistance, please visit

Dealers Beware
This settlement presents an opportunity for processing companies to take advantage of their unsuspecting merchants. Some processing companies are seeking to auto-enroll their merchants in a claims processing scheme. In these cases, a merchant’s failure to “opt out” of auto-enrollment will result in a claim being filed on their behalf and excessive claims processing fees being charged.

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