What is a surcharge

Surcharging is the practice of adding a small fee to a credit card transaction to cover the merchant’s costs for processing the payment. Instead of the merchant having to absorb this expense, the customer who chooses to pay by credit card pays for the processing costs that do not apply to other payment methods.

Cash Discounting

The customer receives a discount equivalent to the cost of credit card processing if they pay in cash (or by paper check or debit card)

Is it legal in your state

Is it legal to charge a fee for using a credit card or not? You will need to check the laws for the state(s) your business operates in. Over the past several years, the number of jurisdictions that prohibit credit card surcharging has diminished as legal challenges have resulted in many laws banning the practice being overturned by the courts.

Prepaid cards and debit cards

There’s one other limitation you need to consider, as well: You cannot impose a prepaid card or debit card surcharge; you can only do so on credit cards. Even transactions processed using signature debit (often referred to as “running a card as credit”) are still debit and are therefore exempt from surcharging. That’s because of the restrictions implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Durbin Amendment specifically deals with debit transactions, including the implementation of a cap on interchange fees. Two states require additional disclosures to surcharge credit card processing fees: Maine and New York. In both cases, you must post both the cost of paying with cash and the cost of paying with a card using dollars and cents. This is on top of Visa, Mastercard, American Express, and Discover requirements, which require you to post notifications at the point of sale and specify the surcharge amount.

Cap Rates

Surcharge amounts are limited to your effective rate for credit card transactions, capped at 4% (2% in Colorado). In other words, you can’t profit from surcharges; you can only recoup your baseline costs.

Taxes Due

Surcharges (and other fees like Environmental Fees) may be subject to sales tax. Check with your local tax rep and pay sales tax on any and all monies collected that are subject to sales tax. It is the store owners responsibility to pay their taxes due regardless of whether or not iDryclean computed them for you.

You must post a notice

You must post appropriate notice inside your store, both at the entrance and at the point of sale.

Surcharge must show on the receipt

You need to include the surcharge amount on the receipt as a separate line item. The surcharge also needs to be included in the network authorization request and settlement. (Note: American Express is the only brand with an exception to this rule.)

NOT A COMPLETE LIST

This list is a starting point for your investigation into credit card surcharges in your store. It is the stores responsibility to investigate any and all state and local rules and regulations. iDryclean will not be responsible for incorrect or illegal charges made by the store.