Understanding Surcharges

What is a surcharge?

A surcharge, sometimes known as a checkout fee, is an additional fee that a merchant adds to a consumer's bill when they uses a card for payment. Surcharges can also be used in some cases to cover increased expenses, such as fuel costs or new regulation adherence expenses.

Surcharges are legally prohibited in the following states: Connecticut, Maine, Massachusetts, and Oklahoma. Please consult with your legal counsel if you are not sure about your state specific requirement.

Surcharge vs. Convenience Fee vs. Service Fee

Surcharges differ from Convenience Fees in that a convenience fee is a charge passed on to customers for the privilege of paying for a product or service using an alternative payment method that is not standard for a business. A business can state that they traditionally accept cash or check only, and offer the convenience of paying with a “non-traditional” method (credit card). Generally, a convenience fee cannot be implemented in in-person settings (such as physical card terminals) – typically this refers to internet and over-the-phone transactions.

The Convenience Fee Rules listed below are based on Visa’s rules, as they are the strictest. Other rules apply if accepting only MC and AMEX

Surcharges & convenience fees cannot be applied on the same payment.

Convenience Fees vs Surcharges

Convenience Fees

Allowed only on Card Not Present transactions
Offered through an alternative channel from the merchant’s normal payment channel
The fee is a flat or fixed amount
Applicable to all forms of payment
Disclosed prior to the completion of the transaction and the cardholder is given the opportunity to cancel. Included as part of the total sale.
Allowed on credit and signature debit.

Surcharges

Allowed on CNP and CP transactions.
The fee is a percentage of the sale
Applies only to credit cards, not debit
Competing brands should be surcharged if the contract allows.
Disclosure surcharge policy required.
Merchant must provide 30 days' notice to card network and acquiring bank before starting to surcharge.
(Merchants must complete registration directly with each card brands.)
Be mindful of state laws.

Surcharges differ from Service Fees in that service fees are actually a type of convenience fee which comes with specific rules and regulations (as opposed to a general convenience fee mentioned above where the fee can be assessed generally for credit card usage).

The main difference between a convenience fee and a service fee program (besides card brand naming conventions) is that the service fee program can only be used by certain limited qualifying MCCs

General Surcharge Requirements

In order to add surcharges to transactions, the following general requirements must be met:

Merchants must register with each card brand 30 days before implementing surcharge
Merchants must register themselves directly with each card brand. (Registration links are provided below.)
State and/or Local Laws must allow surcharges
Applied to Credit Card Transactions Only
No more than the cost of acceptance and no more than 4%, whichever is lower
Disclosure of Surcharge to Customer at POS and check out page
Surcharge amount must be itemized on the transaction receipt
Applicable Credit Card Surcharge Regulation Compliance (see below)

Visa Surcharge Requirements Update - Coming April 15 2023

Visa will streamline the U.S. registration process to match the current process in Canada. Effective April 15, 2023, merchants will no longer be required to register with Visa; they will only be required to notify Worldpay 30 days in advance of implementing their surcharge program.

When a surcharge is assessed, and the surcharge amount is populated in authorization and clearing, Visa will now consider this to be a notification of surcharge.

Merchants should also be reminded surcharges are only permitted on credit cards where surcharges are not prohibited by law.

Maximum Surcharge Amount

The current maximum amount for a credit card surcharge will be lowered from 4% to 3%.

Visa will continue to monitor the assessment of surcharges and will take compliance action when violations of the Visa Rules are identified.

Surcharge Registration

See Surcharge Registration Sites for Each Merchant to register and notify each respective brand 30 days prior:

VISA: https://usa.visa.com/Forms/merchant-surcharge-notification-form.html

MASTER: https://www.mastercard.us/en-us/surcharge-disclosure-webform.html

AMEX: No registration required.

DISCOVER: No registration required.