Can a business pass credit card fees to customers?

It is not necessarily against the rules to offset processing costs. However, it must be done in a manner that aligns with local laws and the rules set by card brands. In this discussion, we will take a deeper dive into the rules to follow to ensure compliance with card brand rules.

What is Allowed?

Cash Discounting:

Merchants are allowed to offer a discount to customers paying cash. That said, the posted price on goods and services must represent the regular price or the card price. Merchants may then offer a discount to customers paying with other forms of payment.

Compliant Surcharging:

Merchants are also allowed to surcharge, where it is legal, to help offset processing costs. Surcharging comes with some additional rules. At the time of writing, merchants can surcharge a maximum of 3% for Visa and 4% for MasterCard credit cards. The surcharge amount cannot exceed your transactional cost, and debit cards are not allowed to be surcharged in any way. Before surcharging, you are required to register with your payment provider, and updates may be required for your point of sale or credit card terminal.

Let’s boil it down:

A discount is only considered a discount if you offer a lower price for cash customers than the posted price. If you post a price on goods or services and then increase that price for customers paying with credit cards, that is a surcharge.

How does Cash Discounting Offset Processing Fees?

The idea behind cash discounting is that you increase all pricing to represent the purchase to cover your payment costs. For customers who opt to pay with cash, you then discount the sale to offset your higher pricing.

Can I Charge a Service Fee or Convenience Fee?

Service Fees:

These are reserved for certain types of merchants like government or educational establishments. This is effectively a surcharge with additional restrictions.

Convenience Fees:

These are allowed by the card brands; however, they must also meet strict guidelines. For one, you have to offer a bona fide convenience to the customer as an alternative payment option. An example would be an apartment building where tenants have the ability to pay rent in person at the management office with no additional charge. The management may create an online payment portal that charges a convenience fee to offset their cost of building and maintaining that payment system. In this case, tenants are still able to make in-person payments without penalty but are offered a more convenient payment option at a higher cost. There are other rules with convenience fees; however, what is mentioned here is normally what prevents businesses from being able to charge these kinds of fees. Do not charge these fees unless you have consulted with your payment provider about your eligibility and proper setup and disclosure.

What Can Happen if I am Not in Compliance?

Visa has received many consumer complaints and has even hired an outside audit firm to secret shop their merchants. Visa can implement fines of $25,000 per month for businesses who are found to be out of compliance. If you think you are currently out of compliance, reach out to your processor immediately. They should be able to review your setup and confirm if you are in compliance or not. From there, make the required changes to your payment practices to avoid any fines.

Am I Going to Have to Re-price My Entire Business?

That is a possibility. You could just go back to not assessing customers a fee for accepting their payments, or you could increase your pricing to include your transactional costs. Once you have increased your pricing, it is up to you whether you offer any sort of discount.

Conclusion:

Accepting card payments does come at a cost, and for the last few years, it seems like costs for everything have continued to increase. The cost of accepting credit cards should be outweighed by the amount of money cardholders spend. That said, these days it feels like accepting credit cards is practically a must for most businesses. It is natural to look for ways to offset increasing costs, and when you can’t offset those costs, then the business has to find a way to pass those costs on to the customers. Re-pricing your business may be a more difficult route than just tacking on an extra fee for card-paying customers; however, like with most things, the easy way isn’t the right way.