Merchant surcharging and the impact to cardholders

Article contributor / Diana Kern, AAP, Sr Financial Solutions Consultant

So called “swipe fees” and merchants’ costs to accept card payments are hot topics. Here are some FAQs to help you answer your cardholders’ questions.

Q: What’s a merchant surcharge?

A: Generally, it’s a fee the merchant requires the cardholder to pay that they wouldn’t otherwise incur with a different payment method. Surcharges are also known as checkout fees.

Q: Can a merchant add a surcharge to all card payment transactions?

A: No. The rules of the global networks, Mastercard^® and Visa^®, prohibit a merchant from charging the fee when a debit card is used. That leaves surcharging capability limited to credit card transactions. The merchant’s processor is usually the party responsible for determining the type of card presented for payment based on the Bank Identification Number.

Q: If a cardholder encounters a merchant who surcharges their debit card purchase, what can they do?

A: Instructions for reporting possible violations of the networks’ surcharge rules are available on Mastercard and Visa cardholder support pages.

Q: Are there any limits on the amount a merchant can surcharge?

A: Yes. Mastercard and Visa placed a cap on the surcharge amount and require it to be related to the merchant’s cost for transactions. Additionally, several U.S. states have laws limiting surcharge amounts and placing other restrictions on merchants. Please consult your legal counsel for current state requirements.

Q: Are a convenience and service fees the same as a surcharge?

A: No. The rules governing convenience and service fees are different and generally apply to certain merchant category codes and payment situations. However, disclosure or notice requirements exist when any such fee is charged.

Q: Can a merchant offer a discount for other types of payments, such as cash?

A: Yes, if the stated price relates to payments made by card, or clearly states the price for cash, card or other payment types side by side.