Everything you need to know about Visa's surcharging rules to protect your small business

Wednesday, July 20, 2022

Raise your hand if you love reading the fine print in contracts.

Okay … we’re guessing there aren’t many hands in the air right now.

Chances are, when you secured payment processing services for your small business you probably weren’t overly concerned with the ins and outs of credit card acceptance rules. But following the card brands’ rules of accepting and processing payments as outlined in your merchant services agreement is a must.

If you add a surcharge to credit card purchases to help cover the costs of payment processing, take note: Visa is getting serious about enforcing their rules surrounding surcharging.

Visa has always had rules in place to prevent business owners from passing the cost of credit card use onto customers. But failure to follow those rules is far more likely to have consequences now that Visa has decided to crack down on offenders.

In the past, unless a customer directly complained to their card issuer about a surcharge from your business, you probably haven’t heard much about the rules of surcharging or their consequences.

But Visa is doubling down on enforcing their rules more aggressively than they have in the past, even conducting on-site audits using mystery shops (i.e., secret shoppers employed by Visa) to proactively investigate if businesses are in violation of their rules.

So what does that mean for you?

To cut to the chase, surcharge violations could mean big fines for retailers and restaurants alike — we're talking $5K-$25K. Even worse, it could result in having your credit card processing privileges taken away.

But don’t hit the panic button yet. If you want to protect your business from non-compliance fines, you need to do just two simple things: learn the rules of surcharging and follow them.

Lucky for you, we’ve created a guide to keep you on the straight and narrow.

Whether you’re already surcharging regularly or just thinking about it, this article is for you. Keep reading to find out (or brush up on) everything you need to know about:

Surcharge playbook

The surcharge playbook

The basics

Okay, back up a second. What’s a surcharge again?

While surcharging might sound straightforward, adding fees to card transactions without violating your merchant agreement is complicated. Before we jump into the rules, let’s define some key terms.

So, what is a surcharge?

It’s a fee a business imposes on a cardholder at the point of sale to offset the processing cost of the credit card transaction. You might also know it by the name “checkout fee.” Either way, this fee is imposed on the published price, which in this case, is the price when paid with cash.

As a small business owner, you know that those credit card processing fees can weigh heavy. That’s why surcharging can be a great solution: It helps pass that payment processing cost to the customer.

If you’re new to surcharging, here’s an example that illustrates how it works:

Surcharge example

Wait, is surcharging different from…

  • A cash discount?

    Yes. This is an important distinction. A cash discount means credit card paying customers pay the posted price of goods, while cash paying customers are charged less. If you’re going to run a cash discount program, make sure you list the actual prices on your shelves and only take a cash discount at the register so you don’t appear to be increasing the price for credit card transactions.

    Let’s recap: With surcharging, the extra cost is added to the published price when a credit card is used. With cash discounting, the cost is deducted from the published price when a credit card is not used. While this might seem like a fine line, it’s important not to confuse a surcharge with a cash discount, as doing so could get you in hot water with card brands like Visa.

  • A convenience fee?

    Also not a surcharge. A convenience fee is a flat-rate charge you can add to transactions that differ from the standard form of payment you typically accept — and it’s not credit card specific.

    For example, if you traditionally accept in-person payments but a customer wants to pay over the phone or online, you might consider charging a convenience fee. You can have a convenience fee, or you can have a surcharge fee, but you can’t have both.

  • A service fee?

    This is a type of convenience fee program with a modified set of rules and one major difference: It’s restricted to certain qualifying merchants with specific merchant category codes (MCC) under education and government areas. Think of it as a convenience fee but with more limitations to who can use it.

Beyond learning these definitions to understand how they differ from surcharging, you’ll want to be aware of what these various fee programs are and how they work as they also rank among the top violations mystery shops are investigating in Visa's new crackdown.

A final word of advice: As Visa put it, any fee added to a purchase specifically for the use of a card is a surcharge no matter what you decide to call it. And it answers to Visa’s surcharge rules.

If you're feeling overwhelmed about keeping up with the difference between these various types of fees and a surcharge fee, Heartland offers a compliant surcharge program designed to take care of the distinctions for you.

Now that we’ve got the basics sorted, let’s move onto — yep, you guessed it — the rules.

The rules

The first thing you need to know is that there are two main sources of rules to be aware of when it comes to surcharging credit card payments: There’s the law and then there’s the card association regulations. If you want to stay compliant, you need to know them both.

Let's start with the law.

Here’s a bit of payments history for you: Surcharging used to be prohibited by the card brands until a court ruling changed that in 2013.

The gist of the court case? Merchants filed a class action lawsuit against Visa and Mastercard alleging that merchants were being charged excessively high fees while the card brands’ surcharge rules kept them from adding a credit card surcharge to help offset that cost.

The outcome of the ruling? The card networks were forced to change their rules, and it became federally legal for merchants to surcharge card transactions at their businesses. Pretty big deal, right?

Despite the change at the federal level, there are still limits.

Within the US, although surcharging is legal federally, it’s still subject to state law. The number of states with laws that prohibit or limit surcharging has dropped over the past several years, but there are some holdouts. 

States where surcharging is off limits:

  • Connecticut

  • Maine

  • Massachusetts

  • Oklahoma

States with unique exceptions to the standard rules:

  • Colorado

  • New York

Wondering what to do if you operate businesses in multiple states? Good news. If you’re a US merchant legally prohibited from surcharging in one state, that does not prevent you from surcharging in another state that allows the practice. Three cheers for that!

As you can see, things can change pretty quickly. Be sure to check your state’s specific regulations around surcharging for the most up-to-date information.

Time for a checkin

Time for a check-in: At this point, you’ve determined whether you can legally surcharge in your state. Now, let’s tackle the other half of the equation — card brand regulations.

Since Visa is stepping up their compliance investigations, we’ll be focusing specifically on their surcharge regulations. However, each of the major card brands (Visa, Mastercard, American Express, Discover) has their own set of guidelines. While largely similar, they do have slight differences. Depending on which card types your business accepts, you’ll want to familiarize yourself with the others too.

Now for a rundown of Visa’s rules:

1. So, you want to start surcharging. What’s the first step?

If you plan to impose a surcharge fee at your business, you’ll need to let a few people know first. Specifically, you’ll need to provide notice of intent to Visa and your acquirer 30 days prior to beginning to surcharge.

How do you go about that process? Simply submit a notification form online to Visa providing information about your business, and let your acquirer know directly. Or sign up for a surcharge program that will handle the paperwork for you.

2. What kind of cards can you surcharge?

Surcharging is limited to credit cards. Let’s repeat that: You are only allowed to surcharge credit card purchases. It’s prohibited to surcharge any debit or prepaid card transactions. Even if you run a debit card as credit, it is still prohibited to surcharge that card. Getting this wrong could result in a big fine. Payment method matters.

3. Is there a limit to the amount you can surcharge?

Yes. The rule of thumb is that the amount you surcharge on a credit card cannot exceed the effective merchant discount rate for that credit card. In other words, you can’t make a profit on surcharges, you can only recoup your baseline costs.

Wondering what effective merchant discount rate means?

Total fees paid by merchant to an acquirer for
processing a specific type of card from a card network

÷

Total sales volume for that type of card

Effective Merchant Discount Rate

However, there’s a cap. According to Visa, you are never allowed to assess a surcharge above 4%, even in cases where the applicable merchant discount rate exceeds 4% of the total transaction cost.

Keep in mind some states have their own limits. Be sure to review your state’s requirements to know your effective rate.

4. Do you need to disclose the surcharge to your customers?

Yes. You are required to disclose the surcharge and clearly alert consumers at the point of entry, point of sale and on every receipt (in-store and online). This is not the place to get creative with language — clearly use the label “surcharge fee” and avoid terms like “non-cash adjustment” or “non-cash fee.”

Here’s what your surcharging signage should look like according to Visa:

Store icon

Entry: For physical store locations, Visa states your main entrance surcharge signage should be a minimum 32 point Arial font but no smaller than any surrounding text.

(The rule regarding surrounding text will be true for all sign postings.) For your ecommerce website, the first page that references which credit card brands you accept needs to include a surcharge notice in a minimum 10 point Arial font.

Surcharge signage

Point of sale: For your physical store, every checkout or payment station needs surcharge signage in a minimum 16 point Arial font. For your ecommerce site, the checkout page needs to include a surcharge notice in a minimum 10 point Arial font.

For online transactions, the consumer must also be given the opportunity to cancel the transaction after the credit card surcharge disclosure.

Your notice at the point of sale must include:

  • The exact amount or percentage of the credit card surcharge

  • A statement that the credit card surcharge is being assessed by the merchant and is only applicable to credit transactions

  • A statement that the credit card surcharge amount is no greater than the applicable merchant discount rate for Visa credit card transactions

Recept

Receipt: On the cardholder’s receipt, itemization of the final surcharge dollar amount must be identified as a “surcharge” and listed separately from the total sale and return amount.

If all these requirements are sounding like a bunch of details you don’t have the time to keep up with, you have another option: Skip the work and sign up for a surcharge program that will create the appropriate signage for you. More on that later!

5. Can you surcharge other card brands differently from Visa?

You are typically required to surcharge Visa on the same terms and conditions as any equal or higher cost competitor that imposes limits on surcharging. You can’t surcharge a Visa credit card in a specific payment channel if:

  • A competitor card brand is prohibiting surcharges on their brand’s products

  • A competitor card brand is limiting the merchant’s ability to surcharge that brand, making the conditions different from Visa’s

Basically, credit card associations want to make sure the merchant isn’t discouraging customers from using one card brand over another by making it cheaper for customers to pay with Visa over Discover, for example. To stay compliant, it’s safest to apply a surcharge to all card brands equally.

Pat yourself on the back. We got through the rules talk. Now for the topic that always follows conversations about rules — what happens if you break the rules.

Working on computer

The consequences

While our main focus has been on surcharging, remember that with Visa’s compliance crackdown, the audits carried out by their secret shoppers also target violations for MCC code assignments, cash discounting, convenience fees and min/max transaction amount.

If the worst happens, and you do find your business accused of committing a violation in one of these areas, whether from a cardholder complaint or a mystery shop, here’s what to expect:

1. Visa will notify your payment processors and acquirer of the offense they believe you committed.

2. Within that violation, Visa will provide a remediation timeframe. This is your chance to remedy the issue or correct the error. The timeline is usually 30/60 days from the date of notification, depending on the violation.

3. If the violation is not remediated, then Visa will assess a non-compliance fee starting at $5K for most violations.

4. If the violation is still not remediated, then they may assess stiffer non-compliance fees in the range of $25K or even revoke your card processing privileges.

Even though it might feel like the last thing you want to do, it’s important to act fast on remediation so you don’t get hit with even bigger fines or penalties. If your business has already been visited by a secret shopper, audits will likely continue to ensure your ongoing compliance. Don’t fall into the trap of thinking this is a one and done situation.

So, when can a secret shopper or customer file a surcharge compliance violation against you? According to the Visa Core Rules and Visa Product and Service Rules, the breaches of conduct they can get you on include if the:

Up arrow

Credit card surcharge amount exceeds the amount specified in Visa's rules

Declined credit card

Credit card surcharge was assessed on a transaction in a way that does not comply with the Visa rules

Money icon

Credit card surcharge was assessed on a transaction type where surcharging is not permitted

Inspection icon

Credit card surcharge was not disclosed

Reciept icon

Credit card surcharge amount did not appear on the transaction receipt

Refunded icon

Credit card surcharge amount was not refunded

Paper icon

A convenience fee, service fee, currency conversion fee, commission or wire transfer money order service fee was applied on a transaction that included a credit card surcharge

Your best defense? If you’re following the rules you won’t get in trouble. Make a point to know your state laws and card brand regulations or work with someone who will keep up with them for you.

You don’t have to navigate surcharging alone.

“Follow the rules” might sound like simple enough advice to follow. But staying compliant with all the surcharging regulations out there, on top of everything else you have to do, can be a challenge to put it mildly.

If you’re feeling overwhelmed, we have a solution: Check out Heartland’s surcharge program. When you partner with us, you’ll get to work with US-based payments experts who will keep you protected from costly fines when mystery shops come knocking on your doors.

Heartland takes care of surcharging requirements for you like:

  • Ensuring your business is registered and 100% compliant with the federal, state and card brand regulations

  • Sending notice of your intent to surcharge to the necessary parties

  • Providing your business with the correct customer signage and receipt language

  • Automating the addition of a surcharge at checkout when appropriate with surcharge-enabled terminals that calculate and apply surcharge on eligible cards for you

Even better? Heartland’s surcharge program puts sales proceeds, including surcharge revenue, in your pocket quickly with next day deposits. Plus, your Heartland Merchant Statement will show exactly how much you’re recovering in surcharge revenue so you don’t have to do the math.

Contact us today to find out more about how we can help you eliminate the guesswork and collect surcharges quickly and accurately with our all-in-one service.


Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us.