Learn more about charging credit card processing fee

Posted by Erica Burles on Fri, May 31, 2013

As a merchant, can I charge customers a processing fee when paying with a creditcard?

In the past, merchants have been bogged down with fees to use credit services, but following a settlement with most major credit card companies, merchants can now pass this fee onto its customers. As of January 2013, merchants are free to impose up to a 4% surcharge on customers paying by credit card. 10 states have already banned merchants from charging this fee: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, there are a few loophole options that will allow merchants within these states to incur a processing charge.  What are your options as merchant to manage credit card fees?

Option 1:

The credit card companies similarly state “You may offer a discount for cash transactions, provided that the offer is clearly disclosed to customers and the cash price is presented as a discount from the standard price charged for all other forms of payment”. While you can’t charge extra for credit card sales, you can charge less for cash as long as all prices are clearly stated to customers, and the cash price is reflected as a discount from the original purchase price.

For example: if the price tag on an item states that the item costs $10, the cash price must be represented as a discount from that price. The price tag for this particular item should look something like this: 

Price: $10.00
5% discount for cash payment @ $9.50
5% Discount for Check Payment @ $9.50

Option 2:

As the definition of a convenience fee varies slightly from one card brand to the next, it is basically a charge in addition to the original transaction amount for the convenience of being able to use an alternate payment method. The convenience fee allowed in all states and while it sounds like the same thing as a surcharge, it is not.

For example, a merchant that accepts credit cards, cash and check as payments would not be able to collect a convenience fee on credit card transactions. However, a merchant such as a utility company that primarily accepts payment via mail could charge a convenience fee on in-person credit card payments that the offer as a bona fide convenience to its customers.

As you can see, in some cases you cannot directly invoice a customer for processing fees, you can effectively pass the cost of processing to them by integrating the processing fees into the price of the product of service or incurring a convenience fee (if applicable). However, if this is done improperly you could wind up in violation of your merchant service agreement and be faced with cancellation or fines, so please review the following guidelines from a few of the major credit card companies regarding surcharge and convenience fees:

Visa (Page 508) - http://usa.visa.com/download/merchants/visa-international-operating-regulations-main.pdf

MasterCard (Section 5.11.2) - http://www.mastercard.com/us/merchant/pdf/BM-Entire_Manual_public.pdf

Capital One - http://www.creditcards.com/credit-card-news/credit-card-convenience-fees-cost-surcharges-1280.php

Submit a Comment

Need Help Now?

Request a Call