Everything you need to know about Visa's surcharging rules to protect your clients

ISVs take note:

If your customers add a surcharge to credit card purchases to help cover the costs of payment processing, you’ll want to fill them in on this recent development.

Visa® is getting serious about enforcing their rules surrounding surcharging.

While surcharging rules have always been there, the major change worth flagging for your customers is that Visa is doubling down on enforcing those rules more aggressively than they have in the past. They’re even going so far as to conduct on-site audits using mystery shops (i.e., secret shoppers employed by Visa) to proactively investigate if businesses are in violation of their rules.

So what does that mean for your customers?

To cut to the chase, surcharge violations could mean big fines for small businesses — we’re talking $5K-$25K. Even worse, it could result in revoking credit card processing privileges.

As an ISV, you have an opportunity to protect your customers from these non-compliance fines. How? It’s simple. Have a conversation with your clients (whether they’re already surcharging regularly or just thinking about it) to warn them about this change and educate them on the rules of surcharging.

All the information you need is in this article.

Keep reading to get the inside scoop on everything your customers will need to know about:

  1. What surcharging is and what it’s not
  2. The rules and regulations of surcharging
  3. The consequences of surcharge violations

The surcharge playbook

Close up of a person paying for a meal with a credit card

The basics

While surcharging might sound straightforward, the reality of adding fees to card transactions without violating merchant agreements can be much more complicated. So, before getting into the rules of surcharging, be sure to define some key terms for your customers to help them understand the basics.

Here are the top questions and answers you’ll want to cover:

What’s a surcharge?

It’s a fee a business imposes on a cardholder at the point of sale to offset the processing cost of the credit card transaction. Your customers might also know it by the name "checkout fee." Either way, this fee is imposed on the published price, which in this case, is the price when paid with cash.

For small business owners, those credit card processing fees can weigh heavy. That’s why surcharging can be a great solution: It helps pass that payment processing cost to the purchasing customer.

If your client is new to surcharging, give them this example to illustrate how it works in more detail:

A graphic explaining credit card surcharge

After covering what surcharging is, you might need to clear up some confusion for your customers about what surcharging is not as well.

  • Is surcharging different from a cash discount?

    Yes. This is an important distinction. A cash discount means credit card paying customers pay the posted price of goods, while cash paying customers are charged less. If your customer is going to run a cash discount program, they’ll want to make sure they list the actual prices on their shelves and only take a cash discount at the register so they don’t appear to be increasing the price for credit card transactions.

    Here’s another way to explain the difference: With surcharging, the extra cost is added to the published price when a credit card is used. With cash discounting, the cost is deducted from the published price when a credit card is not used. While this might seem like a fine line, it’s important not to confuse a surcharge with a cash discount, as doing so could land your customers in hot water with card brands like Visa.

  • A convenience fee?

    Also not a surcharge. A convenience fee is a flat-rate charge a business can add to transactions that differ from the standard form of payment they typically accept—and it’s not credit card specific.

    For example, if you have a client who traditionally accepts in-person payments but a customer wants to pay over the phone or online, they might consider charging a convenience fee. You can have a convenience fee, or you can have a surcharge fee, but you can’t have both.

  • A service fee?

    This is a type of convenience fee program with a modified set of rules and one major difference: It’s restricted to certain qualifying merchants with specific merchant category codes (MCC) under education and government areas. Think of it as a convenience fee but with more limitations to who can use it.

Beyond learning these definitions to understand how they differ from surcharging, your customers will want to be aware of what these various fee programs are and how they work as they also rank among the top violations mystery shops are investigating in Visa’s new crackdown.

Here’s a final word of advice to impart: As Visa put it, any fee added to a purchase specifically for the use of a card is a surcharge no matter what you decide to call it. And it answers to Visa’s surcharge rules.

Now, on to those rules.

A person using a laptop, surrounded by packing materials.

The rules

The first thing you need to make sure your customers understand here is that there are two main sources of rules to be aware of when it comes to surcharging credit card payments: There’s the law and then there’s the card association regulations. In order to be compliant, they need to know—and follow—both.

Let’s start with what they need to know about the law.

Here’s a bit of payment history you can share for background: Surcharging used to be prohibited by the card brands until a court ruling changed that in 2013.

The gist of the court case? Merchants filed a class action lawsuit against Visa and Mastercard® alleging that merchants were being charged excessively high fees while the card brands’ surcharge rules kept them from adding a credit card surcharge to help offset that cost.

The outcome of the ruling? The card networks were forced to change their rules, and it became federally legal for merchants to surcharge card transactions at their businesses.

Despite the change at the federal level, there are still limits.

Within the US, although surcharging is legal federally, it’s still subject to state law. The number of states with laws that prohibit or limit surcharging has dropped over the past several years, but there are still some holdouts.

States where surcharging is off limits:

  • Connecticut
  • Maine
  • Massachusetts
  • Oklahoma

States with unique exceptions to the standard rules:

  • Colorado
  • New York

If you have customers who operate businesses in multiple states, good news. If they are a US merchant legally prohibited from surcharging in one state, that does not prevent them from surcharging in another state where they do business that allows the practice.

Be sure to advise your customers to check their state’s specific regulations around surcharging for the most up-to-date information.

Once you’ve determined whether your customers can legally surcharge in their state, you can move on to the other half of the equation—card brand regulations.

Since Visa is stepping up their compliance investigations, focus specifically on their surcharge regulations for this conversation. However, encourage your customers to check out the guidelines for other major card brands they may accept as well (Mastercard, American Express®, Discover®).

A close up photograph of a stack of credit cards.

Visa’s rules are pretty extensive. Below is a more concise rundown of the key points to cover with your customers:

  • 1. Provide notice of intent before starting a surcharge program.

    If you have a customer who plans to impose a surcharge fee, they’ll first need to provide notice of intent to Visa and their acquirer 30 days prior to beginning to surcharge.

    They can submit a notification form online to Visa providing information about their business, and let their acquirer know directly.

  • 2. Only assess a surcharge on credit cards.

    Make sure your customers understand this crucial disclaimer: They are only allowed to surcharge credit card purchases. It’s prohibited to surcharge any debit or prepaid card transactions. Even if they run a debit card as credit, it is still prohibited to surcharge that card. Getting this wrong could result in a big fine. Payment method matters.

  • 3. Keep surcharge rates below the cap.

    The rule of thumb is that the amount of the surcharge on a credit card cannot exceed the effective merchant discount rate for that credit card. In other words, your customers can’t make a profit on surcharges, they can only recoup baseline costs.

    If your customers are wondering what effective merchant discount rate means, here’s a simple equation:

    A graphic showing the Effective Merchant Discount Rate equation.

    However, don’t forget to warn them about the cap. According to Visa, it is never allowed to assess a surcharge above 4%, even in cases where the applicable merchant discount rate exceeds 4% of the total transaction cost.

    Be sure to remind your clients to review their state’s requirements as some states have their own limits.

  • 4. Disclose the surcharge to customers.

    Small businesses are required to disclose the surcharge and clearly alert consumers at the point of entry, point of sale, and on every receipt (in-store and online). This is not the place to get creative with language—they should clearly use the label "surcharge fee" and avoid terms like "non-cash adjustment" or "non-cash fee."

    Here’s a more detailed look at what their surcharging signage should look like according to Visa:

    Entry: For physical store locations, Visa states the main entrance surcharge signage should be a minimum 32 point Arial font but no smaller than any surrounding text. (The rule regarding surrounding text will be true for all sign postings.) For ecommerce websites, the first page that references which credit card brands are accepted needs to include a surcharge notice in a minimum 10 point Arial font.

    Point of sale: For physical stores, every checkout or payment station needs surcharge signage in a minimum 16 point Arial font. For ecommerce sites, the checkout page needs to include a surcharge notice in a minimum 10 point Arial font. For online transactions, the consumer must also be given the opportunity to cancel the transaction after the credit card surcharge disclosure.

    The notice at the point of sale must include:

    • The exact amount or percentage of the credit card surcharge
    • A statement that the credit card surcharge is being assessed by the merchant and is only applicable to credit transactions
    • A statement that the credit card surcharge amount is no greater than the applicable merchant discount rate for Visa credit card transactions

    Receipt: On the cardholder’s receipt, itemization of the final surcharge dollar amount must be identified as a "surcharge" and listed separately from the total sale and return amount.

  • 5. Follow the fine print of how to surcharge competitor credit cards.

    Small businesses are typically required to surcharge Visa on the same terms and conditions as any equal or higher cost competitor that imposes limits on surcharging. They can’t surcharge a Visa credit card in a specific payment channel if:

    • A competitor card brand is prohibiting surcharges on their brand’s products
    • A competitor card brand is limiting the merchant’s ability to surcharge that brand, making the conditions different from Visa’s

    Essentially, credit card associations want to make sure the merchant isn’t discouraging customers from using one card brand over another by making it cheaper for customers to pay with Visa over Discover, for example. The safest way for your clients to stay compliant is to apply a surcharge to all card brands equally.

Okay, that’s the end of the rules talk. Now it’s time for the topic that always follows conversations about rules — what happens if you break them.

A person sitting in a cafe in front of a laptop.

The consequences

While your main focus for this conversation is surcharging, it’s also a good idea to remind your customers that with Visa’s new compliance crackdown, the audits carried out by their secret shoppers also target violations for MCC code assignments, cash discounting, convenience fees, and min/max transaction amount.

If the worst happens, and one of your clients does find their business accused of committing a violation in one of these areas, whether from a cardholder complaint or a mystery shop, here’s what you can tell them to expect:

  1. Visa will notify your client’s payment processors and acquirer of the offense they believe they committed.
  2. Within that violation, Visa will provide a remediation timeframe. This is your customer’s chance to remedy the issue or correct the error. The timeline is usually 30/60 days from the date of notification, depending on the violation.
  3. If the violation is not remediated, then Visa will assess a non-compliance fee starting at $5K for most violations.
  4. If the violation is still not remediated, then they may assess stiffer non-compliance fees in the range of $25K or even revoke card processing privileges.

It’s important to instruct your customers to act fast on remediation so they don’t get hit with even bigger fines or penalties. If their business has already been visited by a secret shopper, audits will likely continue to ensure their ongoing compliance. Don’t let them fall into the trap of thinking this is a one and done situation.

Even though you went over the rules earlier in your conversation, it’s a good idea to recap the breaches of conduct that a secret shopper or customer can file a surcharge compliance violation for according to the Visa Core Rules and Visa Product and Service Rules. Here’s an overview:

  • Credit card surcharge amount exceeds the amount specified in Visa’s rules
  • Credit card surcharge was assessed on a transaction in a way that does not comply with the Visa rules
  • Credit card surcharge was assessed on a transaction type where surcharging is not permitted
  • Credit card surcharge was not disclosed
  • Credit card surcharge amount did not appear on the transaction receipt
  • Credit card surcharge amount was not refunded
  • A convenience fee, service fee, currency conversion fee, commission, or wire transfer money order service fee was applied on a transaction that included a credit card surcharge

So to wrap things up, what’s the best advice to give your customers? If they’re following the rules they won’t get in trouble. While it might sound simple, making a point to know their state laws and keep up with card brand regulations is their best defense.

Three people sitting around a table at a cafe, and looking at an open laptop on the table.

The role you play

As an ISV, you do so much more to set your customers up for success than just providing the software they need to manage their businesses.

Initiating conversations like this one is one of the ways you can add value to your client relationships by establishing yourself as a trusted source of information on payment processing-related issues, ultimately winning you a stickier portfolio.

If you’re looking for more avenues to engage with your customers, we can help. Global Payments Integrated isn’t your average partner. We’re here not only to provide you with payment processing integrations and value-added technologies, but also to connect you to resources that empower you to find new ways to help your customers.

Contact us today to learn more about creating a partnership with Global Payments Integrated. And don’t forget to explore our blog to discover more industry news and insights so you can continue to keep your customers out of trouble and in the know.

Erin Donnelly

Copywriter

Erin is part of the marketing copywriting team at Heartland, a Global Payments company. With a background in writing, editing and strategic communications, Erin works to tell meaningful stories for the small business community. In her spare time, she enjoys baking, reading and drinking copious amounts of coffee.

Erin Donnelly