Surcharging Credit Card Transactions

creditcard swipe

In 2012, Visa and MasterCard settled a multi-billion dollar legal dispute between banks and retailers over credit card processing fees. As part of the settlement deal, the credit card companies had to reduce surcharging credit card transactions for 8 months at a fixed rate. They also concluded that surcharging credit card transactions, which are charges used to cover processing credit and debit payments (which are set by credit card companies and deducted from the transactions by banks who issue the cards), gave merchants the freedom to pass along surcharges to customers if they choose to do so.

The key phrase being ‘choose to do so’. The ‘check out fee’ for the customer could be anywhere in between 1.5% to 3% of the customer’s total purchase. However, ten states have laws restricting any type of surcharging of credit card transactions. These states are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. For example, it is prohibited to charge a customer the surcharge inside a Target store in New York, but it’s allowed inside a Target store in New Jersey. This makes for holes in the system.

While merchants pay $50 billion annually in surcharges for credit card transactions, and clearly would be benefiting from these surcharges to help lessen the load; many retailers chose not to. In fact, several large retailers opted out of the surcharges immediately. These companies include McDonald’s, Target, and Walmart. In the end, small businesses were left with the choice to decide whether they wanted to surcharge their customers  or not. Most small businesses followed suit with the larger retailers, fearing being the first in their area to start charging customers. Not only that, but business owners are aware they need repeat business to survive. If retailers started surcharging the credit card transactions to their customers—it makes the decision much easier for the customer to choose a competitor who has not elected to do so.

The bottom line is that no consumer wants to pay any hidden extra surcharges or taxes. This is evident when we look at competitive gas pricing. It’s no secret that fuel prices are cut throat competitive—and in most major cities, paying at the pump with a credit card over cash has resulted in higher prices. People are willing to travel and switch it up in the search for only a few cents off their gallon of gas. This too could be applied to surcharging credit card transactions; and the disadvantages to stores opting to surcharge could end poorly for the business.

So how is a consumer made aware that the retail location they are currently shopping in  surcharges the credit card transactions?  According to the settlement agreement, retailers must post signs making customers aware—and also inform Visa and MasterCard 30 days prior to charging the fee. American Express carriers would also be surcharged, including debit. Consumers using PayPal on the other hand, cannot be surcharged.

Consumers may not see extra fees on their receipts any time soon. Merchants continue to struggle in a battle against the courts and inflated surcharges put in place by two major card companies (Visa and MasterCard), which control over 80 percent of the market.  Due to this dominance, merchants don’t have other card issuing companies to choose from, and may be stuck accepting the surcharged credit card transactions.

In the meantime, these three questions remain.

  • Is it practical or is it good business to pass along surcharges to consumers or employees?
  • Should passing these surcharges become industry practice or is it taking a risk?
  • Will passing the surcharges result in angering employees as well as consumers?

To learn more about how we can help merchants and partners alike, please visit


New Surcharges by Merchants?

Due to the January 22, 2013 Visa and MasterCard Antitrust Settlement, beginning January 27, 2013 merchants in the U.S. region and U.S. territories will have the option of adding a surcharge to Visa and MasterCard Credit Cards at the brand level or at the product level.


Settlement Fund: $7,250,000,000. Covered Period: January 1, 2004 to November 28, 2012. If your business accepted payment by Visa or MasterCard debit and/or credit cards on or after January 1st 2004 to November 28th 2012, a class action settlement may affect you. Several lawsuits were filed by retailers in 2005 accusing Visa, MasterCard and American Express of fixing fees for processing credit and debit card payments and barring stores from directing their customers to use lower-cost payment options, such as credit cards with lower reward structures, which results in merchants paying higher interchange fees. An “interchange fee” is a fee paid by merchants to the credit card companies for each retail transaction that uses a credit or debit card. This fee ranges from between 1% and 5% of the transaction. On Friday, July 13th, the Plaintiffs reached a settlement with Visa, MasterCard and the major card-issuing banks (the “Settling Defendants”) in the amount of $6.05 billion. In addition, the Settling Defendants will reduce interchange fees that would otherwise be paid by merchants on Visa and MasterCard credit card transactions over an eight-month period. The Settling Defendants also agreed to significant rule changes which are aimed at reducing future fees and transactional costs. This portion of the settlement is valued at an additional $1.2 billion. The settlement still requires approval from the court. There may be additional settlements forthcoming between the class and American Express / Discover.

 Thus, the monetary portion of the Settlement consists of two funds. The first is a cash fund in the amount of $6.05 billion. Any person, business or other entity that accepted Visa or MasterCard credit or debit cards in the U.S. at any time between January 1st, 2004 and November 28th, 2012 may be eligible to receive a payment from the $6.05 billion fund. The second is a fund equal to a portion of interchange fees attributable to certain merchants that accept Visa or MasterCard credit cards for an eight-month period to start by July 29th, 2013. That fund is estimated to be approximately $1.2 billion. This settlement brought on processing rule changes that now gives merchants the right to apply surcharges or checkout fees.

Merchants can add Surcharges now?

Merchants must first notify Visa, MasterCard and their Acquirer of their intent to surcharge at least 30 days prior to implementing surcharging. Merchants should submit notifications to Visa at and to MasterCard at

For merchants that accept credit or charge cards of other payment network brands (i.e. American Express and Discover), surcharging practices are subject to a competitive “level playing field” limitation that depends on whether those payment network brands impose surcharge restrictions on credit cards and the merchants’ costs of accepting those cards. If the merchant chooses to surcharge, they must clearly disclose to their customers at the point of store entry or at the point of sale and the dollar amount of the surcharge on the transaction receipt.  The surcharge amount must be electronically printed on the cardholders receipt in order to allow the entire transaction (surcharge and amount of goods or services) amount to be submitted in the authorization and clearing records. Merchants must continue to comply with all applicable state laws that prohibit surcharging and state/federal laws regarding deceptive or misleading disclosures. Alpha Card’s Customer Service team is well aware of this new policy and is available 24/7 to assist merchants with understanding these new protocols.


Surcharges can only be applied to credit card transactions. Currently, 10 U.S. States have surcharging restrictions including California, Colorado, Connecticut, Florida, Kansas Maine, Massachusetts, New York, Oklahoma and Texas. Merchants should consult legal counsel to determine whether their practices comply with relevant state law.

Will any stores add a surcharge? Should consumers worry about paying a credit card surcharge?

The National Retail Federation (NRF) has discussed the settlement with many merchants, and no merchant they contacted plans to surcharge. The NRF was not involved in the class action lawsuit. Most experts initially believed the mega retailers would skip the fee altogether or test it in markets as a way to gauge customer reaction before bringing it out on a larger scale basis.

However, NBC News contacted some of the country’s largest retailers. Wal-Mart, Target, Sears and Home Depot said they have no plans to add a credit card surcharge. Visa and MasterCard have rules that require retailers to handle credit cards the same way in all of their stores across the country. That means a chain with stores in any of the 10 states where a surcharge is banned would not be able to have a surcharge at any of its stores. Also, under terms of the settlement, a merchant who adds a surcharge to purchases on a Visa or MasterCard would have to do the same with American Express cards. But AMEX prohibits surcharge fees. Thus a merchant who accepts American Express as well as Visa/MasterCard would not be able to surcharge any of those cards. Very few retailers would be able to surcharge under the settlement, and the vast majority don’t want to surcharge even if they could. The merchant isn’t profiting from the fee. They are only allowed to cover their costs, not add a mark-up to the fee amount. Most experts believe that no merchant who does any sort of volume business is going to want to surcharge because it will drive away their customers and slow down transactions. In fact, most consumer advocates believe that except for some small retailers, a credit card surcharge is a non-issue in the short-term. However, some consumer advocates believe the surcharge will start to take into effect in a few years. For example, in Australia, where surcharging credit cards began in 2003, at first few merchants charged the fee. Now approximately one-third of the sellers there – including some hotels, supermarkets, department stores and utilities – charge extra to use a credit card.

What about disclosures? 

The below signage is provided as an example of surcharge disclosure. Merchants are free to develop their own signage that meets surcharging requirements and are permitted to combine brand messages if more than one credit card brand is surcharged. Merchants should verify relevant state laws before imposing a surcharge.

Point-of-Sale Disclosure Example

“We impose a surcharge of ____________ % on the total transaction amount on Visa, MasterCard and Discover credit card products, which is not greater than our cost of acceptance. We do not surcharge debit cards.”

The advocacy group Consumer Action has published a booklet on credit card checkout fees. It warns consumers to be on the lookout for these fees and advises them to express their discontent. The new rules from Visa and MasterCard require merchants who apply a credit card surcharge to post a notice at the store’s entrance. The exact percentage of the surcharge does not need to be disclosed until the point of sale. The customer receipt must list the amount of the surcharge. Online stores with a surcharge will not be required to have a notice on the home page. They only need to alert shoppers about the surcharge when they reach the page where credit cards are first mentioned. In most cases, that means the final step of checkout when the purchase is being completed.

What This Means for Consumers

Consumers will pay an additional fee when they use their credit card at merchants that decide to surcharge. Consumers should be aware there are limits to the amount merchants can surcharge. Merchants are permitted to apply a surcharge to only credit card purchases and cannot impose a surcharge for purchases made using a debit or prepaid card. If merchants intend to impose a surcharge on credit card purchases, they are required to notify customers before customers make an actual purchase. Merchants must disclose surcharge fees on every receipt – both in store and online. Consumers should carefully review receipts where checkout fees should appear.

If you do see signage warning of new credit card fees, there are some things you can do as a result, although none of them are convenient. You can undoubtedly protest with your wallet and take your money to a merchant that isn’t charging the fee. You can pay with cash or a debit card, but keep in mind you’re still paying a fee to cover the interchange, although not a new and separate fee. Finally, you can use a rewards card that gives you cash back, which would help to offset the added cost of the merchandise.

Not the end of the story

This settlement that allows merchants to impose a surcharge is only preliminary. The court has yet to issue its final ruling in this case. That’s expected later this year. Once that happens, various retailers and business groups plan to challenge the settlement. That could drag into late 2014. For now, the possibility that the settlement could be modified will most likely keep many businesses from instituting credit card surcharges. But in any case, as an Alpha Card employee, I can confidently state that Alpha Card Services knows the ins and outs of this issue and our Customer Service team is available to assist merchants with understanding this new policy.