Surcharging VS Dual Price Fines and Penalties (State/Fed/Visa/MC)

Introduction:

In today’s world, credit card transactions have become ubiquitous. Credit cards offer convenience to customers, and they also offer several benefits to merchants, such as reduced risk of theft, the ability to track sales, and increased customer satisfaction. However, accepting credit cards comes with costs, and merchants often pass these costs on to customers in the form of surcharges. This practice has become a subject of regulatory scrutiny, with some governments and card issuers imposing fines and penalties on merchants who surcharge their customers. This white paper will explore the different aspects of surcharging, the fines and penalties imposed by governments and card issuers, and the potential benefits of cash incentives and dual-price credit card processing platforms.

Surcharging:

Surcharging is the practice of adding a fee or charge to the regular price of goods or services when a customer pays with a credit card. Surcharging is a way for merchants to recover the costs associated with credit card transactions, such as processing fees and interchange fees. However, surcharging has become a contentious issue, with some customers perceiving it as unfair or deceptive.

Fines and Penalties from Governments:

Several governments have taken steps to regulate surcharging, and some have imposed fines and penalties on merchants who surcharge their customers. For example, in Australia, the Competition and Consumer Amendment (Payment Surcharges) Act 2016 prohibits excessive surcharging and imposes penalties on merchants who breach the regulations. The penalties can be up to $210,000 for corporations and $42,000 for individuals.

In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 prohibits excessive debit card interchange fees and limits the fees that merchants can charge customers for using debit cards. However, the Act does not regulate credit card surcharges, and the practice is allowed in most states. However, ten states have banned surcharging altogether, and merchants who violate the bans can face fines and penalties. For example, in California, merchants who surcharge customers can be fined up to $2,500 for each violation.

Fines and Penalties from Card Issuers:

Card issuers such as Visa and Mastercard also have rules and regulations regarding surcharging. Merchants who accept Visa or Mastercard must comply with the respective company’s rules or risk fines and penalties.

For example, Visa’s rules state that merchants can only impose a surcharge equal to the cost of acceptance, which includes the processing fees and the acquiring bank’s markup. Merchants who violate this rule can face fines of up to $10,000 per violation. Mastercard has similar rules, and merchants who violate them can face fines of up to $25,000 per violation.

Cash Incentives:

One alternative to surcharging is to offer cash incentives to customers who pay with cash. Cash incentives can help merchants offset the costs of credit card transactions without imposing fees on customers. Cash incentives can also encourage customers to pay with cash, which can be faster and cheaper for merchants.

Dual-Price Credit Card Processing Platforms:

Another alternative to surcharging is to use dual-price credit card processing platforms. Dual-price processing platforms allow merchants to offer a lower price for customers who pay with cash or debit cards and a higher price for customers who pay with credit cards. Dual-price processing platforms can help merchants recover the costs of credit card transactions without imposing fees on customers who pay with credit cards.

Conclusion:

Surcharging can be a contentious issue, and governments and card issuers have taken steps to regulate the practice and impose fines and penalties on merchants who violate the rules.  Dual-price credit card processing platforms offer alternatives to surcharging that can help merchants recover the costs of credit card transactions without imposing fees on customers. Ultimately, the choice of whether to surcharge or use cash incentives or dual-price processing