Merchants are charged varying rates for processing credit card payments. Prior to 2013, they were unable to pass along that cost to their customers. As of January 27, 2013, however, a legal settlement involving a group of United States merchants changed all that, and merchants acquired the right to surcharge their customers. While merchants now have the right to surcharge purchases made in the U.S., various considerations and requirements deter many from doing so.
The Basics: Surcharging is permissible in Michigan, but it is not mandatory. Note that surcharging remains prohibited in a number of states (California, Connecticut, Florida, and New York, to name a few). In Michigan, a merchant cannot surcharge an amount greater than what the merchant is paying to accept the credit card, and in any event cannot surcharge more than 4% of the transaction. For example, if the merchant pays 1.8% per transaction, the surcharge cannot exceed 1.8%; if a merchant pays 4.5%, the surcharge cannot exceed 4%. Additionally, merchants may not surcharge debit cards or prepaid cards.
Making the Election: To begin surcharging, a merchant must provide a 30 day advance notice to Visa, MasterCard, and the merchant’s acquirer (the financial institution accepting and processing the transaction). The surcharge must be disclosed to customers at point of entry and point of sale, both online and in-store. Additionally, the merchant must provide an itemization of the final surcharge amount identified separately on the receipt.
Business Considerations: Before imposing a surcharge, merchants should think about potential customer reaction and whether or not competitors add a surcharge. Also, they need to consider the disclosures needed (as detailed above) to ensure compliance.
As always, please feel free to contact Wright Beamer with any questions about this or any other business matter.