Accepting credit cards is considered necessary for most business owners, but this comes at a price. Merchant’s pay fees for accepting card transactions, which bites into profit margins – especially for smaller merchants. However, there is a way of offsetting these costs: surcharging.
There has been plenty written about surcharging – and the debate about it goes on – however, for now, let’s discuss the basics.
Is Surcharging Legal?
Surcharging didn’t used to be legal, but in 2013, a ruling made it permissible in most states for businesses to include a surcharge. However, this was subject to numerous conditions, including:
- Surcharges can’t exceed 4%.
- They can only apply to Visa and MasterCard credit card transactions.
- The credit card companies must be told in advance of a merchant’s intention to apply them.
- And there should be adequate signage.
However, surcharging still remains a contentious issue, and they remain illegal in several states in the U.S. including Florida, Connecticut, Maine and California.
Increasing Number of Businesses Introducing Surcharges
Despite the 2013 legal ruling, merchants remained wary of introducing charges because of the possible impacts on their business. Nevertheless, a recent article by CreditCards.com notes that an increasing number of smaller merchants have begun to implement them to defray costs. As Will Lund, Maine Consumer Credit Commissioner, stated:
“It’s generally a small merchant — occasionally they’ll decide they’re tired of paying the high fees.”
And it is easy to understand why small merchants feel the need to introduce surcharges because they often get less favorable interchange rates compared with larger businesses.
Is Surcharging Right for Your Business?
Any business considering introducing surcharges needs to think about the pros and cons; while it does mean you’ll likely to enhance your profit margins, there can be negatives too. For instance, some consumers object to paying surcharges, or you could risk losing out to competitors who don’t implement them.
The Legal Battle Goes On
2013’s legal battle was by no means the end of the matter, and surcharging has rarely been out of the news since, especially in states where surcharges remain illegal. New York’s surcharging ban has been tested in the High Court, and earlier in 2017, the debate made its way to the Supreme Court. It is thought likely the legal dispute will be referred back to the state courts for a final decision later this year.
Surcharges have been an ongoing debate among business owners, and introducing them is a decision many business owners must wrestle with
Surcharge fees aren’t always popular with customers, but for some businesses they are a necessity if they are going to maintain the balance between making fair profit margins and accepting credit cards.
However, any merchant considering imposing surcharges also needs to consider the wider implications to their business, and ensure they are in compliance with legal guidelines.