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Automated Surcharging Compliance: The Answer to Complex Credit Card Processing Regulations

Like most business owners, you don’t have time to read every piece of legislation that comes out — especially when it’s about credit card surcharge fees.

When your customers use a credit card to make a purchase - you end up paying a fee to the credit card company. You can pass on that fee, however, by charging a credit card surcharge fee to customers who then take on the cost. This surcharge fee is typically a percentage of the total purchase price, added at the time of sale. While credit card surcharging is now legal in most states, there are some restrictions that you need to be aware of.

Merchant interchange fee regulation is a complex topic, and it can be difficult to keep up with the latest changes to remain compliant if you’re trying to go it alone. Here’s what you need to know.

Credit Card Surcharging Compliance Rules Can Be Complex

Credit card surcharging fee rules can be complex and vary according to the credit card brand, type, and state you are in.

To comply with merchant interchange fee regulation: A) You need adequate signage at the store entrance and point of sale informing customers of the credit card fee. B) You must process the price of the item or service and the credit card fee as one transaction. C) You must show the credit card surcharge fee as a separate line item on the receipt.

State laws vary in complexity.

For example, in New York, merchants who accept credit cards can pass the surcharge cost on to their customers. However, they must inform consumers that a surcharge is being added to the purchase price in a way that doesn’t require customers to do any calculations. They cannot post a sign that says “$10 plus 3% credit card surcharge” if the actual final price is $10.30.

Despite the complexity of the rules of credit card processing companies and state governments, regulations are designed to increase consumer transparency, allowing them to make informed decisions and ultimately ensuring a more positive customer experience.

The Need For Surcharging Compliance

In a world where swipe fees (otherwise called interchange fees) are on the rise, it’s more important than ever for merchants to take advantage of surcharging to offset these costs.

However, it’s important that you ensure total compliance when implementing surcharging. Failure to comply with surcharging rules can lead to significant financial penalties from credit card brands.

You can side-step numerous customer complaints and regulatory fines by implementing a payment processing system that offers automated surcharging compliance.

Changes in Merchant Surcharging Regulation

In recent years, there has been a national movement led by CardX to overturn bans on credit card surcharges (see CardX: leading the movement). CardX CEO Jonathan Razi, referred to as the “mind in surcharging,” has been instrumental in the push for fair and transparent credit card processing laws.

“When I first started CardX, there were 10 states that had laws on the books prohibiting merchants from passing on surcharges,” says Razi. “Those 10 laws were essentially copy and paste; all virtually identical to one another.” The laws were made more visible by small businesses who sued the state of New York, explained Razi.

“When I read the way the State of New York was defending their law and analyzed the sort of straw man arguments in the brief, I said to myself, ‘that’s not how [surcharging] works.’ It’s actually a win-win, not only for businesses but also the consumers.” The New York state appellate court ultimately confirmed merchants’ right to surcharge so long as consumers are well-informed of the true price of a credit card purchase.

Colorado became the latest state to join this trend in 2021 when it passed a new law allowing businesses to add a surcharge for credit transactions. Today, a total of 48 states legally allow credit card surcharging. The rationale behind the push to overturn these bans is that businesses should be able to pass on the cost of processing credit card payments to customers who choose to use them.

This allows businesses to save money, which they can pass on to all customers with lower prices or put into growing their bottom line. In addition, it gives customers a choice to use their credit card or avoid the surcharge by using another type of payment, such as a debit card. Debit card transactions are typically significantly less expensive for businesses to process than credit card transactions.

Advocacy for Fair Surcharging Laws

Every time a customer uses a credit card, the business is forced to pay a fee. If they don’t charge these customers, they can either raise prices, harm customers who pay with cash or debit cards, or accept a lower profit margin on credit card sales.

For too long, merchants have had to shoulder the burden of interchange fees, and customers have paid hidden costs at higher prices. CardX aims to change that by passing on the credit card fee to customers and giving them options to choose a lower-cost payment option or pay a surcharging fee to use their credit card conveniently.

This way, merchants can offer more competitive prices, and customers can avoid overpaying for their purchases. By making payments more transparent and fair for everyone, CardX is opening up a new era of commerce. CardX is not just a payments company but a recognized authority and a strong advocate for merchant affordability and consumer fairness. We were the only solution provider to file a brief in Expressions Hair Design v. Schneiderman, contributing real-world expertise to a landmark U.S. Supreme Court case. In March 2017, the Supreme Court held that state “no-surcharge” laws restrict constitutionally protected speech.

This was a victory not only for CardX but also for merchants and consumers across the country.

We founded CardX to relieve businesses struggling with the increasing cost of credit card acceptance. Allowing businesses to pass on interchange fees from credit card companies to customers helps level the playing field and make it easier for businesses to compete. As a result, CardX provides a valuable service to companies and allows them to thrive in an increasingly competitive market.

Automated Compliance Surcharge Solutions

Passing on credit card processing fees to customers is now common practice among merchants, but it comes with a few strings attached. To comply with the contractual rules set forth by card brands, merchants must adhere to many compliance surcharge requirements.

These rules protect cardholders from being unfairly charged for using their card.

CardX provides a turnkey solution that takes care of all the necessary details and is the most compliant solution on the market. With our patent-pending technology, you can rest assured that you’re always complying with the latest rules and regulations. You can focus on running your business without worrying about incurring unwanted fees and fines for non-compliance.

Benefits of Surcharging for Merchants

More and more, merchants who accept credit cards are surcharging for credit card use. And there are benefits to this for the merchant.

First, it allows them to pass on the credit card transaction fee to the consumer.

Second, it can help grow their profit margins because they’re not eating that cost.

And third, if customers don’t want to pay interchange fees, the merchant can offer debit card processing or cash payment options, allowing the customers to avoid the fees altogether. For instance, the vast majority (79%) of cardholders don’t penalize the business they purchased from because of a credit card surcharge.

The Future of Surcharging

It’s clear that credit card surcharge fees benefit merchants and have a positive social impact.

According to Razi, “Businesses operating with tight profit margins often benefit from surcharging because their alternative for taking cards when rates go up, as they have in the past, is to raise prices on their products.” He added, “Such a scenario results in cash and debit payers paying more because someone else uses credit cards.”

Credit card surcharging is now legal in 48 states. This means more businesses can add a surcharge to credit card transactions.

However, businesses must be careful to follow the rules around credit card surcharging. “Credit Card brands are catching up” says Razi. “I’ve seen 10x more enforcement in 2022 than any prior year.”

Ready to grow profits and pass off regulatory compliance responsibility to the expert? Schedule a free savings consultation with a member of our team.