Imagine you go to the shoe store and after trying on several pairs, you decide on the perfect ones! You go the register to pay for those shoes that cost $129.00. Hand your credit card to the clerk who says nothing and the price scabs in as $132.87! What happened? The list price was $129! Your were surcharged or penalized for using your credit card! And that BEFORE TAXES!
Credit card processing companies and agents are popping up offering merchant to sign up with them using a “cash discount” program to eliminate your credit card processing fees; but are they legal? Are they permitted by the "Brands", Visa/MasterCard/Discover or American Express? Are they permitted in your state?
The answer: NO!
There’s a lot of confusion between “cash discounts” and “surcharges" programs. Many processing companies are actually labeling "surcharge programs" as "cash discount programs" misleading merchants into thinking that they are on the right side of laws and card brand regulations...and they are NOT!
Cash Discount vs. Surcharge
A cash discount is when you list credit card prices and offer a discount on that price for customers who pay with cash. A cash paying customer pays less than the listed price. A credit card paying customer pays the list price.
A surcharge is when you list cash prices and charge an additional fee on top of that price for customers who pay with a credit card. A cash paying customer pays the listed price. A credit card paying customer pays more than the list price.
The second example penalizes customer that uses a credit card in their purchases. All "Brand" agreements (that merchants have signed to get their merchant account) have regulations that prohibit the surcharging or penalizing of customers who choose to pay using their credit cards. So, if you charge more at the register than the listed price, it is a surcharge, regardless of what ANY processors want to call it. Even if the processor tells you that you’re simply adding a “service fee” or a “non-cash adjustment” it is still a surcharge.
I know, it's just a small technicality! It may sound like a minor difference, it’s actually very important in terms of legality and compliance with the "brand" rules merchants agreed to. Getting it wrong means risking fines or having your merchant account shut down permanently! For violations of the card brand rules, businesses can be fined $1,000 per occurrence, increasing to $5,000, $10,000, and $25,000 per occurrence for repeated violations. The merchant may be also be added to the Terminated Merchant File (“TMF,” or MATCH list) which makes it difficult to secure a merchant account from any processor in the future.
Today's customers are very savvy and know that they should not be paying surcharges on listed prices without being advised that they are looking at CASH PRICING and a surcharge of X% with be added at the register. Visa and Mastercard have forms on their websites that allow cardholders/customer to easily report being surcharged a fee for using their credit card! Those merchants will be immediately investigated and fines levied.
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| This is how a true Cash Discount is shown & explained in stores! |
Why does it matter? Two important reasons...
#1 - Real Cash Discount Programs, in their true form (see above), are allowed in all 50 states, however several states have laws against ANY surcharge programs. If you surcharge in a state with a law against it, you’re breaking the laws of that state besides breaking your merchant agreement with the "Brands".
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| As of 2018, surcharging is prohibited by law in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, and Oklahoma. |
#2 Surcharges on Debit Cards are strictly prohibited! Even if debit cards are “run as credit” and even in states where credit surcharges are legal. The BRANDS clearly spells out that surcharges cannot be applied to debit...PERIOD!
To summarize, you cannot apply a fee above the publically listed price to a credit or debit card, no matter what your processor calls the fee (a “surcharge”, “non-cash adjustment”, “service fee”, or anything else) even if your business falls within the states that allow surcharging as it goes against the regulations the merchant agreed to upon opening the merchant account.
For the sake of your merchant account and your business be sure you’re on the right side of laws and card brand regulations before surcharging or signing up for ANY cash discount program. If you would like to know more about legal Cash Discount Programs, call us!
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