Surcharging in 2O13

Lynn: When did surcharging begin?

Greg: The networks began to allow surcharging in the United States in January 2013. However, the credit card infrastructure did not really support the networks’ related requirements. Until the settlement became final, it would have been too cumbersome and expensive for providers to address the related technology challenges. This meant that merchants who wanted to surcharge in 2013 could not comply with all requirements.

Lynn: What’s one example of a technology challenge?

Greg: Point-of-sale (POS) systems need a surcharge field, so merchants can itemize the surcharge amount on receipts, which is one of the requirements they must meet. Given the number of parties and different systems out there, this challenge could take months to overcome. 

Surcharging in 2O14 and Beyond

Will Providers Make Changes to Support Surcharging?

Lynn: Now that the settlement is final, I assume the parties will start to change their systems/technology accordingly. What should we expect to see?

Greg: I would expect very slow adoption by the processors. As far as I know, there is no mandated date requiring them to update their systems and API to comply with the surcharge rules. In addition, the software, terminal and POS vendors will need to update their software to comply with the customer notification, receipt requirements, and ability to differentiate between a credit and debit card.

Which Merchants are Most Likely to Surcharge?

Lynn: When you and I spoke nearly a year ago, you noted several issues merchants will need to consider before they start surcharging; for example, network compliance, software enhancements, staff training, customer awareness. Which types of merchants do you think will pursue surcharging, despite these issues? Larger merchants only?  

Greg: I believe you’ll see many small merchants implementing a surcharge of some type. Many already charge a surcharge for transactions under a certain dollar amount. Lower transaction amounts impact profit margins greatly due to the nature of interchange fees. Of course, this is in violation of past rules and would still be in violation of the new rules, based on the way they charge it at the register. Typically, they add a “fee” key to their register.

You might see larger merchants implementing it in some instances where they are dealing with low-margin contracts with their buyers.

States' Surcharging Laws

Lynn: A year ago, we wondered if more states would join those that already outlawed or limited surcharging prior to 2013. Indeed, dozens of bills that addressed surcharges were introduced in 2013 within more than 20 states. Utah is one example of a state that enacted a bill prohibiting merchants from surcharging on credit card transactions of $10,000 or less. Are you aware of others that passed similar laws? 

Greg: Even though many states are considering it, I am not aware of any that have codified it into law.

Lynn: Conversely, New York, already a no-surcharge state, is now under a court-ordered preliminary injunction that prevents the state from enforcing that law. This was the result of a lawsuit initiated by a handful of merchants. Do you think other state laws that prohibit surcharging are now in jeopardy?

Greg: Definitely. I believe most states which prohibit surcharges have followed the same restrictions the card associations have for years. Specifically, a merchant is allowed to provide a cash discount, but is prohibited from surcharging for customers using a credit card. I have heard many complaints from merchants over the years about this restriction imposed by the card associations. The New York case is based upon the constitutionality of whether these restrictions prevent a merchant’s First Amendment rights. I would assume, if this is upheld, it would impact the rest of the country.

Lynn: You told me previously that the merchant ID and physical business address for that ID determines whether surcharging is permissible, given the various state laws. In other words, a merchant abides by the laws in the merchant’s state, regardless of the laws in other states to which the merchant ships goods or in which it provides services. Are you aware of merchants in no-surcharge states who have moved to a state that allows surcharging?

Greg:  No, I am not. Again, there is still no good way of implementing it for the merchant yet. 

Learn more about the state laws...

Three Things End-Users Should Confirm About Merchants Who Surcharge

Lynn: When an end-user encounters a merchant who wants to surcharge, how can they confirm that the merchant has compiled with the networks’ requirements?

Greg: The three things they should look for are:

1. Is there notification at the POS, payment page or catalog that the merchant surcharges?

2. At the time of purchase, is there an opt-out option for the transaction?     

3. Does the receipt properly show the surcharge amount?

Lynn: What advice do you have for end-users who encounter merchants who want to surcharge? Many have indicated that they will simply pay another way.  

Greg: I guess that’s a case of who has the leverage. A potential issue for users is what the GSA policy is for surcharges. According to the GSA website, a legal surcharge is reimbursable as a miscellaneous expense.  Suppliers that decide to surcharge the government must also surcharge everyone else according to the non-discrimination rules. I suppose a workaround might be contractual language that reimburses the end-user organization for the surcharge amount. As a last resort, an end-user is a consumer and can threaten to take their business elsewhere.     

LIMA3’s Experience with Merchant Interest in Surcharging

Lynn: Did LIMA3 see an increase in merchant inquiries after the official Notice of Class Action Settlement was sent to them during the first quarter of 2013?

Greg: To be honest, not really. We had some when the news first came out, but it really diminished over time. I don’t think there will be much traction until some major merchants adopt it.