What is Surcharging?
Merchants can add a surcharge to credit card purchases to offset credit card fees. A surcharge is different from a convenience fee, which is charged to customers for using non-standard payment methods. Merchants can charge convenience fees in all 50 states. On the other hand, a surcharge is added by merchants to cover the costs associated with credit card transactions. Merchants can apply the surcharge to all credit card payments for a specific card type or to specific categories of credit card products. They don’t need a primary or secondary payment channel to institute surcharges. However, surcharging is not allowed in some states, so merchants should consult with their respective merchant account acquirers to understand all the surcharge rules before charging this fee. To ensure all brands are treated equally, Visa has set the maximum surcharge cap at three percent, effective April 15, 2023. The rules for surcharge fees vary per card brand. The following section covers the surcharge rules for Visa, Mastercard, Discover, and American Express. If you have any questions about prohibitions, restrictions, or additional requirements in your state, it is best to consult with an attorney.
Visa Surcharge Rules
Merchants must notify their acquirer 30 days before they start adding surcharges. The surcharge amount should not be more than three percent, even if the merchant’s average discount rate is higher than three percent. Surcharge fees can be applied by merchants under various merchant category codes, with no industry restrictions. However, state and/or local laws may prohibit merchants from applying surcharge fees. Therefore, merchants should consult their legal counsel for any possible restrictions.
U.S. region merchants can apply surcharges to Visa credit cards at the brand level or the product level. A brand-level surcharge must be applied equally to all Visa credit cards and cannot exceed the applicable surcharge cap. A product-level surcharge can be applied to a Visa credit card product and cannot exceed the applicable surcharge cap for that specific product type. However, surcharging practices are subject to the “Level playing field” restrictions listed below.
Level Playing Field Restrictions:
- Limitations include brand surcharge restrictions and the merchant’s costs of accepting those credit cards.
- If the merchant accepts a competing credit card brand that is more expensive than Visa or the competing card brand limits the merchant’s ability to surcharge credit cards, the merchant can only surcharge Visa credit cards in the same way as permitted under the competing card brand credit card rules.
If the merchant accepts a competing credit card brand that prohibits the merchant from surcharging in a particular channel of commerce (that is, either face-to-face or non-face-to-face), the merchant cannot surcharge Visa credit cards unless it also surcharges the competing credit card brand, regardless of the cost of the card to the merchant.
- Card Type Restrictions: Merchants are not allowed to surcharge Signature and PIN Debit/Prepaid transactions.
- Credit Refund Restrictions: The surcharge must be returned on Credit/Refund Transactions. The surcharge must be included as part of the total amount of the transaction (combined into one transaction).
Merchants are required to inform customers about the surcharge on credit card purchases before customers make payments. This notice must be posted at the store entrance and the point of sale. In an online environment, this notice must be posted on the first page referencing credit card brands.
Surcharges can only be applied to USA cardholders (Visa, MC, Discover, and Amex) for CP and CNP transactions. Visa’s Operating Regulations prohibit surcharging outside the U.S. unless a local law or variance requires merchants to engage in the practice. Merchants must disclose surcharge fees on every receipt, both in-store and online. The surcharge amount must be included in the Network Authorization Request and in Settlement.
Mastercard Surcharge Rules
Merchants who plan to add surcharge fees to Mastercard transactions must notify Mastercard and their acquirer at least 30 days in advance. However, it’s important to note that state and/or local laws may prohibit merchants from assessing surcharge fees. Therefore, merchants should consult their legal counsel to ensure they comply with any restrictions.
Merchants are allowed to assess surcharge fees across various merchant category codes, without any industry restrictions. In the U.S. region, merchants can apply surcharge fees to Mastercard credit cards at the brand level or product level. If a brand-level surcharge is applied, it must be applied equally to all Mastercard Credit Cards and cannot exceed the applicable surcharge cap. A product-level surcharge may be applied to a Mastercard Credit Card product and may not exceed the applicable surcharge cap for that product type. However, surcharging practices are subject to the “Level Playing Field” limitations listed below:
- If the merchant accepts a competing credit card brand that is more expensive than Mastercard or the competing card brand limits the merchant’s ability to surcharge credit cards, the merchant may surcharge Mastercard credit cards only in the same manner as permitted under the competing card brand credit card rules.
- If the merchant accepts a competing credit card brand that prohibits the merchant from surcharging in a particular channel of commerce (that is, either face-to-face or non-face-to-face), the merchant may not surcharge Mastercard credit cards unless it also surcharges the competing credit card brand regardless of the cost of the card to the merchant.
There are certain card-type restrictions to surcharging. Merchants cannot surcharge Signature and PIN Debit/Prepaid transactions. Additionally, the surcharge must be returned on Credit/Refund Transactions and must be included as part of the total amount of the transaction (combined into one transaction).
It’s mandatory for merchants to notify customers about the surcharge on credit card purchases before customers make payments. This notice must be posted at the store entrance and at the point-of-sale. In an online environment, this notice must be posted on the first page referencing credit card brands. Merchants must also disclose surcharge fees on every receipt – in-store and online. Finally, surcharges can be applied only to USA card holders (Visa, MC, Discover and Amex) for Card Present and Card Not Present transactions. Visa’s Operating Regulations prohibit surcharging outside the U.S. unless a local law or variance requires that merchants be permitted to engage in the practice. The surcharge amount must also be included in the Network Authorization Request and in Settlement.
Discover Surcharge Fee Guidelines
Merchants are allowed to add a surcharge on card sales, but only if the surcharge amount does not exceed the merchant fee paid to Discover for the card sale. Additionally, the merchants must also add surcharges on card sales made using other cards (credit, debit, and prepaid) that are accepted by the merchant. However, it is important for merchants to consult their legal counsel to make sure that state and/or local laws do not prohibit them from assessing surcharge fees.
There are no industry restrictions on the merchant category codes that can impose surcharge fees, but merchants must notify Discover and their acquirer at least 30 days before they begin surcharging. Merchants can assess surcharge fees for both card-present (CP) and card-not-present (CNP) transactions.
The surcharge amount must not exceed the cost of acceptance for the card sale and must be assessed equally on all card sales conducted using the same type of cards (credit, debit, and prepaid) or payment methods operating on other payment networks. The surcharge must be included as part of the total amount of the transaction and must be disclosed to customers before they make payments.
Merchants must post a notice about the surcharge on credit card purchases at the store entrance and point of sale or on the first page referencing credit card brands in an online environment. The surcharge dollar amount must be disclosed as a separate line item after the transaction subtotal and before the total amount of the card sale.
The surcharge amount must be included in the Network Authorization Request and in Settlement. To calculate the surcharge fee, merchants should use their effective transaction rate, which is the total amount of fees incurred for accepting all types of credit cards, averaged out per transaction. The effective rate can be based on either the previous 12 months or the last 30 days.
American Express Rules
As per the American Express Merchant Operating Guide of April 2019, a merchant cannot impose any restrictions, conditions, disadvantages or fees on the acceptance of a Card that are not imposed equally on all Other Payment Products. This rule applies to all cards except for electronic funds transfer, cash or check.
It is not allowed for merchants to charge a higher surcharge for one card brand over another. This is despite American Express interchange rates for certain industries being higher than those of Visa or Mastercard. Therefore, the same surcharge fee must be assessed for all cards. The recommendation is to assess the surcharge amount based on the average effective transaction rate across all card types.
However, merchants may face challenges when imposing a surcharge on American Express cards. This can be due to difficulties in calculating the effective transaction rate for setting the surcharge amount or due to high interchange rates for different card brands/transactions. In such cases, merchants who wish to surcharge on permitted card types may not be allowed by their payment processors to accept American Express, in order to remain compliant with American Express Surcharge Rules.