Merchants must adhere to the operating rules written and policed by the credit card companies. These rules have always prohibited surcharging for credit card transactions. For years, retailers who violated any of the terms of the contract and/or operating rules, many of which were never published or made available to retailers, were subject to fines or loss of services.
In 2005, the merchant community filed suit to establish that the anticompetitive practices of the credit card companies were illegal. On July 13, 2012, a proposed settlement, In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, was issued. This proposed settlement included a $7.2 billion payment and several minor modifications that include the ability to surcharge. However, because the proposed settlement did not introduce competition and transparency into the payments system, a majority of the named plaintiffs (including NACS) have rejected the terms of the settlement. While the proposed settlement is still opposed by the merchant community and it is still very unclear if the proposed settlement will ultimately go to final approval, the 10 pages of detailed regulatory rule changes allowing surcharges went into effect January 27, 2013.
Interestingly, the Electronics Payments Coalition (EPC), the mouthpiece of the big banks and credit card companies, was the principal group promoting the news of surcharges. The group claimed that it was monitoring for violations and encouraged consumers to post their objections on Facebook and Twitter. It did not explain that they have also tried to keep the very issue of swipe fees hidden from both retailers and consumers for the past decade. EPC also does not explain that more than 1,000 merchants and trade groups (including NACS and many NACS members) objected to the proposed settlement and the surcharges that it might allow.
Retailers are allowed to charge their customers a fee that is roughly equal to the amount that they are charged in swipe fees, which ranges between 1.5% and 4%, based on a variety of factors.
If merchants want to assess a surcharge, they must first communicate their intent to Visa and/or MasterCard at least 30 days prior to implementing a surcharge program, at either the credit card product or brand level (but not both). They must also provide prominent notices about these fees—both at the entrance and register. The surcharge amount also must be identified separately on the receipt.
It is not likely for a variety of reasons. First, 10 states that represent 40% of the market have laws prohibiting surcharging. These states are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas—though there are ongoing legal challenges to some of these state laws.
Second, under the agreement, retailers who surcharge on Visa or MasterCard transactions also must surcharge for American Express transactions if they also accept that card. However, American Express rules state that retailers must surcharge all card types if they surcharge, including debit. That would undercut debit reform and create pressure for merchants to drop American Express. Because the rules require merchants to give 30 days' notice to Visa and MasterCard before surcharging, the card companies will be able to put pressure on merchants to stop them from ever doing it.
Third, merchants that accept PayPal in their stores will not be able to surcharge, or will be forced to violate their agreements with PayPal and surcharge for its cards, too.
Fourth, retailers' notices to consumers about the surcharges must say that the retailer is imposing the surcharge, not that the surcharge is the result of over-inflated fees set by the credit card companies on behalf of banks that won't compete on price. These misleading notice requirements are designed to make consumers blame retailers, and to dissuade retailers from surcharging.
Fifth, most retailers are wary of surcharging to begin with, for a variety of reasons, chiefly competition. This is especially true of gas stations, where price competition is fierce. NACS has repeatedly surveyed customers about their price sensitivity at the pump and has found that nearly half of all consumers would change their behavior to save 5 cents per gallon. NACS is not aware of any retailer that is instituting a surcharge program. It is important to note that discounts for cash or debit card payments are widespread, but these are discounts, not surcharges.
These requirements and restrictions are long and complex. Visa has posted information online. MasterCard also has posted information online.