U.S. Merchants Can Now Charge for Credit Card Transactions

In November 2012, the U.S. District Court for the Eastern District of New York preliminarily approved a proposed settlement agreement with Visa and MasterCard. As part of the settlement, Visa and MasterCard were required to allow merchants to charge for certain credit card transactions beginning January 27, 2013. This surcharge — it’s called a “checkout fee” — can be up to 4 percent that merchants can add to the sale in to cover credit card processing costs. But, importantly, the fee cannot be added to debit card or prepaid card transactions.

As I stated in “Visa, MasterCard Settlement Not an Automatic Win for Merchants,” my July 2012 article, merchants need to be cautious with any surcharging. I do not believe the overall settlement is in the best interest of merchants. I agree with several trade associations and large merchants that the settlement does not go far enough in resolving the issue of transparency and fair rates and fees in the card processing industry.

Be Cautious of Surcharging

  • This recent November ruling is a “preliminary” approval only. The final settlement could be prolonged and could impact surcharge capability.

  • Surcharging is a two-edged sword. Yes, on the surface it may help pay for the merchant’s cost to process a credit card transaction. However, it can also drive consumers away from the merchant’s business or prompt them to pay with something other than a credit card. That may sound advantageous. However, industry studies show that customers spend more when using a credit card.

  • So far, some of the largest retail merchants have already stated that they do not plan to surcharge.

  • Ten U.S. states have surcharging restrictions. These are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Understand All the Rules and Regulations

Here are some of the key rules and regulations you need to know before surcharging. For a complete list, go to Visa Rules and Regulations and
MasterCard Rules and Regulations.

  • Visa and MasterCard require merchants to notify them and the acquirer 30 days prior to implementing a surcharge.

    To notify Visa, go to the Visa site above and click on “Notification of Intent to Surcharge” and complete the form. Your merchant account provider may be the acquirer. However, contact your provider to determine if they need any specific information.

    To notify MasterCard, go to the MasterCard site above and follow the directions under “Merchant Registration with MasterCard and Acquirer.”

  • U.S. merchants may assess a surcharge on credit card purchases that does not exceed the merchant discount rate for the applicable credit card surcharged with a maximum surcharge of 4 percent.

  • Ecommerce merchants must alert shoppers about any surcharge on the first page that references credit card brands.

  • Brick-and-mortar merchants must disclose surcharging at the point of entry and point of sale. Also, the final surcharge amount must be identified separately on the receipt.

  • Merchants must surcharge Visa and MasterCard on the same terms and conditions as any equal or higher cost competitor that imposes limits on surcharging. This may mean that if the merchant accepts a card brand that does not allow surcharging — such as American Express — the merchant will not be allowed to surcharge the Visa and MasterCard credit card transactions. Merchants need to review the regulations with their provider.

Be Careful of Misleading Sales Tactics

In October 2011, interchange rates for most debit card transactions were lowered, due to the Durbin Amendment. In my June 2011 article “Durbin Amendment May Foster Deceptive Credit, Debit Processing Fees,” I cautioned merchants to beware of misleading sales tactics as a result of the Durbin Amendment. I have seen all of the misleading sales tactics I predicted would take place.

I now caution merchants to beware of misleading sales tactics that will be fostered by this preliminary court settlement. Those misleading sales tactics may include:

  • Salespeople informing merchants that the recent Visa/MasterCard settlement means they now get better pricing from Visa and MasterCard then the merchant’s current provider, so they can offer the merchant a lower rate.

  • New terminal leases or terminal set up fees to implement the required surcharge notification.

  • Savings analyses that have some amount of surcharging implemented to enhance the providers projected savings.

  • Merchants being informed of certain mandates or stipulations that just are not true.


I do not believe this November 2012 settlement is an automatic win for merchants. Merchants need to fully understand the consequences of surcharging and be on guard for misleading sales tactics as a result of this preliminary settlement.

Phil Hinke
Phil Hinke
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