Ask the expert: Surcharging

Considering credit card surcharges

Q What actually is a surcharge?

A In the context of credit cards, surcharging is defined as adding up to 4% on credit card transactions to recoup payment processing costs. The practice became permissible to merchants in 2013 in the wake of a class action lawsuit against Visa and Mastercard. It’s important to note that a surcharge is distinct from a convenience fee, which is a relatively older but similar term in the credit card lexicon. A convenience fee is a flat rate that can be added to both debit and credit card transactions. It’s a cost passed to the customer to give them the option of paying in a way that’s convenient to them, hence the name.

Q I’ve heard there are a lot of rules around surcharging — is that true?

A Yes, if you choose to surcharge, you’re required to follow rules put in place by each credit card brand. You’ll need to notify the credit card brands of your intention to surcharge, as well as notify your customers or clients. Additionally, you cannot surcharge more than the cost of your processing fee, and you must list surcharges as separate line items on an invoice. It’s also important to remember that you can only apply a surcharge to credit cards, not debit cards.

Q Is surcharging permissible in every state?

A Almost. Surcharging was once outlawed as an anti-consumer practice in some states, but these laws have been challenged, and other states have followed suit over time. If you have any questions about your state’s surcharging laws, I suggest you contact your state attorney general for the most up-to-date information.

Q So, should I implement surcharging in my firm?

A If it’s legal in your state, it’s completely up to you. Some firms that could not previously bear the burden of paying credit card fees could see surcharging as a win, while others might see it as nickel-and-diming their clients. I suggest looking at how you’re currently getting paid. If your clients are paying you mostly with debit cards or eCheck as opposed to credit cards, a surcharge won’t have as much of an impact on your business.

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