How to Report Improper Credit Card and Debit Card Surcharging
The rules governing fees charged to customers when they pay with a card, known as a credit card “surcharge,” are clearly outlined in card brand policies and various state regulations. This guide explains the types of surcharges that are restricted and how to report businesses that improperly impose these fees. Before filing a complaint, it’s essential to confirm that the business is actually violating the rules.
Article Summary
Before we dive in, here’s what we’ll cover:
- Visa’s rules for credit card surcharges.
- Mastercard’s rules for credit card surcharges.
- American Express’ rules for credit card surcharges.
- What the law says.
- How to report surcharges that violate rules and regulations.
Related Articles
- All State’s Laws Regarding Credit Card Surcharges
- Charging Your Customers for Using Credit Cards will Kill Your Business, Here Why:
Is It Illegal to Charge Customers for Using a Card?
At the federal level, the right for businesses to impose surcharges on card payments has been passed to the states to regulate, and most states have allowed them to continue in various forms. A few states have outright bans on credit card surcharges, while Colorado limits the maximum surcharge to 2% of the transaction amount. As of April 2023, the states that have fully banned surcharging are Connecticut, Maine, Massachusetts, and Oklahoma.
Can Surcharge Fees be Charged for Debit Cards?
No, businesses are prohibited from adding surcharges to debit card transactions under Visa and Mastercard rules. Several states also explicitly ban the practice. The restriction exists because debit card processing fees are significantly lower than those for credit cards.
Under the Durbin Amendment of the Dodd-Frank Act, most debit card transactions are capped at a 0.05% fee plus 5 cents per transaction. If a business imposes a 4% processing fee on a debit card payment, the excess either becomes profit for the business or goes to the payment processor through fee arbitrage—both of which violate card brand policies and federal law.
Visa’s Policies for Credit Card Surcharging
In order for a business to comply with Visa’s surcharging rules, the business must conform to the following rules.
Correct Implementation
Businesses must notify Visa at least 30 days before implementing credit card surcharges. Additionally, their payment systems must be configured to display the surcharge as a separate, clearly labeled line item as a card payment surcharge on customer receipts. Surcharges can only be applied to credit card transactions.
Consumer complaints suggest that many businesses fail to comply with this rule, often due to improper programming by payment processors, which prevents machines from correctly distinguishing between card types.
As an alternative, businesses can offer different prices for cash and credit card payments, a practice known as “dual pricing” and “cash discount,” an approach commonly seen at gas stations where the price for fuel is given for both cash and card paying customers.
Signage and Notification
Businesses that impose credit card surcharges must display clear signage informing customers of the surcharge fees before a transaction takes place. These notices must be posted at all store entrances and points of sale, ensuring visibility. The signage must explicitly state that the fee is imposed by the business, not by Visa or any other card network.
For businesses using dual pricing, all merchandise must be clearly labeled with both the cash price and the credit card price. Online businesses must also disclose any surcharges before the customer reaches the checkout page.
Visa Fee Calculation
Visa’s policies require that card surcharges not exceed the actual cost to the business and must not exceed 3% of the transaction or limits set by state laws, such as Colorado’s 2% maximum. However, in practice, most payment systems do not relay the actual processing costs back to the business’s equipment, making accurate fee calculation impossible in the vast majority of surcharge fees.
As a result, many payment processors that market surcharging features to businesses set a fixed surcharge rate without informing business owners that this practice violates Visa’s rules. In some cases, these processors set the rate higher than 3%, putting businesses at risk.
Businesses considering surcharges should thoroughly review Visa’s surcharge policies, as non-compliance can lead to significant legal and financial consequences.
Mastercard’s Policies for Credit Card Surcharging
Mastercard’s policies resemble that of Visa’s with a couple notable differences.
Mastercard Fee Calculation
Mastercard’s surcharging rules have become increasingly difficult to adhere to in recent years. Like Visa, the company requires that businesses only pass through the actual costs they incur for accepting cards. They are allowed to charge up to a 4% fee, but only if their own costs exceed 4% in processing fees. Additionally, Mastercard has numerous other requirements of which can incur expensive fines if a business fails to comply. See Mastercard’s surcharging policies for a full breakdown of what you need to know.
American Express and Discover Surcharging Policies
Surprisingly, AMEX provides no guidance in the American Express Merchant Reference Guide or any public policies regarding surcharging. In fact, they don’t even require it to be a line item on the customer’s receipt. They also do not impose a fee cap but encourage businesses to comply with state laws. Discover appears to handle surcharging in much the same way.
Surcharge Fee Arbitrage by Processors
A concerning issue with fixed-rate surcharging is the question of who keeps the excess fees when the actual processing cost is lower than the surcharge charged to customers.
For example, if a business’s actual processing cost for a credit card transaction is 2%, but the surcharge is set at 3%, where does the extra 1% go? In many cases, it goes to the payment processor managing the business’s credit card transactions as well as to a residual commission paid monthly to the sales person who helped the business establish their merchant account. This creates a strong incentive for both processors and sales people to set surcharge rates as high as possible—often without fully disclosing the risks that inflated surcharge fees pose to the business.
How To Report Businesses and Processors That Are Charging Improper Card Surcharge Fees
Start by Contacting the Business Owner
Reporting a business to the card brands or legal authorities can cause significant penalties to be levied upon them. In some cases, the first offense could cost a business as much as $25,000. In today’s difficult business climate, such fines could have serious implications. Due to this, we recommend that you first contact the business owner to inform them that they are in violation of card brand policies or the law. It’s quite possible that they were not made aware of the risks and you could help them avoid a serious headache. Refer them to this article to help them get educated.
Post Public Online Reviews
If contacting the business owners fails to achieve results, one of the quickest and most effective ways to get a business to change unsavory policies is to take your grievance public. File complaints on their Google Maps listing and other websites like Yelp and Trip Advisor. Make sure the owners of these operators are aware that surcharging negatively impacts your experience at their business. In fact, numerous surcharging studies have shown that that the practice hurts revenues and can permanently damage customer loyalty.
Call Your Card Issuer or Bank
If you experience a surcharge that violates a card brand policy or card type, such as a fee charged when using a debit card, call the customer support number on the back of your card. You may be asked to supply proof of the fee, so be sure to keep your receipt. In some cases, the bank may credit you for the fee. In any case, your report will likely result in a warning or fine for the business and processor.
How to Report Non-Compliant Surcharges to Visa
The easiest way to report a business for surcharging a Visa credit card improperly is to call the customer service line associated with the credit card used to make the purchase. Additionally, you can file a complaint directly with Visa by reporting a purchase issue here.
How to Report Non-Compliant Surcharges to Mastercard
Mastercard recommends that consumers call the customer support line of your credit card to report improper surcharges. Additionally, you can call Mastercard’s direct customer support line at (800)-627-8372 or submit a surcharge complete online.
Reporting Illegal Card Surcharges
If you believe a business is knowingly applying illegal card surcharges in violation of state laws, or that credit card processor is facilitating illegal card surcharging practices, there are a few routes that you can take to report them to government agencies.
Call 311
Calling your local 311 may seem like a surprising option, but some municipalities have strict ordinances regarding surcharging practices. Your operator may offer local options for reporting non-compliant fees and could result in the quick action from the city.
Contact Your State’s Attorney General
Contacting your State Attorney General may not result in immediate action, but the more reports that are filed about an offender, the more likely the Attorney General will take action. This is especially true with debit card surcharging since it is a crime in some states to add fees to debit card purchases.
Simply search for you State’s Attorney General on Google and then follow instructions on reporting illegal or fraudulent business practices. Keep in mind that supplying evidence is crucial, so keep records showing the illegal surcharges.
Write your City, County, and State Representatives
Your representatives in government are not likely to step into your particular grievance, but informing them of illegal activity regarding card surcharging practices can help them refine the laws and regulations in future legislation.
File a Report with the FTC
As a the top government agency on the block, the Federal Trade Commission can have a major influence on bad processors as well as the entire credit card processing industry.
Bottom Line
Credit card surcharge fees are becoming more common in the United States. Businesses that engage in the practice are required to comply with state laws and card brand policies. We always recommend resolving your grievance directly with a business before resorting to formal complaints. You can help businesses comply and lower their costs by referring them to our list of the best low-cost credit card processing companies. If all else fails, reporting non-compliance can help bring an end to predatory surcharging practices.
