For years, merchants have had the freedom to charge their customers a premium for paying with a credit card. Yet the practice has never really caught on.

That could be changing, as reports from payments attorneys and other industry players suggest an uptick in merchants inquiring about how they can go about imposing these fees, a process otherwise known as surcharging.

Merchants in most states have been allowed to surcharge since 2013 as a result of a multibillion-dollar lawsuit settlement, in which Visa and Mastercard agreed to lift surcharging restrictions on credit cards but not debit cards. And just in the past year, more merchants seem to be bringing up the topic with their business advisers.

The increased interest is noticeable to payments attorney Stephen Aschettino of the firm Foley & Lardner LLP, which counsels many of corporate America’s major companies. Several of the merchants Aschettino encounters are business-to-business suppliers, and some midsize manufacturers claim that they could save as much as half a million dollars a year if they could pass on their transaction costs to customers.

“In general, merchants have become more sensitized to the transaction cost of using credit cards,” he says.

Alison Burns, president and CEO of merchant brokerage firm Precision Payments Systems, estimates that the surcharging inquiries she gets from merchants are up 50% to 60% just in the past eight or nine months. Most of the requests come from merchants with lower on-average transactions. “I definitely notice a bigger influx of people asking about it,” she says.

As managing partner of Processing Solutions Inc., a registered ISO and merchant services provider, Derrick Hess works with agents from around the country and has been fielding a lot of questions from merchants about whether they can surcharge and at what rate.


Visa and Mastercard have agreed to life surcharging restrictions on credit cards but not debit cards.

“Absolutely they can," Hess says. "The question is are your customers going to accept that, or are they going to find another company that doesn’t surcharge, especially when it’s a higher ticket?"

Hess has encountered other ISOs that use surcharging programs as a door opener to get more clients. “An ISO might say, ‘Let me show you how to process your credit cards for 0%,'” he says.

Although surcharging has been permitted since 2013, it appears that many merchants are just now becoming more aware of their options.

“It can take years for court decisions and class-action settlements to permeate through the media and eventually gain the attention of corporate executives,” Aschettino says.

Company controllers and other money managers are looking at the line item for credit card processing fees and giving it more scrutiny than they did in the past. Merchants know they can lower their costs by switching processors, negotiating better fees or exploring some of the alternative payment systems on the market. But the low-hanging fruit, Aschettino says, is to impose surcharges and leave everything else alone.

Fee issue ongoing in court

Payments attorney Holli Targan attributes the rise in surcharging inquiries to the confusion surrounding that area of the law. She says more ISOs and fintech companies are seeking counsel on the state of the law and how they can formulate their merchants’ programs to comply.

“It’s taken a little while to percolate and to come into processors’ and merchants’ consciousness. But now that it is, they’re trying to figure out how to use it,” says Targan, who belongs to the firm Jaffe, Raitt, Heuer & Weiss PC.

Surcharging has been a contentious issue for the past decade, starting with a class-action lawsuit that merchants filed in 2005 against Visa, Mastercard and several financial institutions over alleged antitrust violations. As part of a multibillion-dollar settlement to that lawsuit in 2012, Visa and Mastercard changed their rules to allow surcharging on the condition that merchants follow certain stipulations, such as posting signage to inform customers about the added fees.

The settlement left it up to each state to determine the legality of surcharging. After the settlement, 10 states passed legislation banning surcharges: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

Some recent developments are further complicating the issue. In June, a federal appeals court overturned the 2012 settlement, claiming that the lawyers in the suit represented retailers with competing interests.

Despite the reversal, the rules allowing surcharging remain in place, but their long-term fate is uncertain. “Because the settlement was thrown out, are Visa and Mastercard going to go in and change the rules back?” Targan asks.

That scenario could be a lot less likely because of yet another twist: The U.S. Supreme Court agreed in September to take up the surcharging issue.

The court will hear an appeal filed by a group of merchants in New York that pursued legal action to strike down the state’s surcharging ban. The group filed lawsuits claiming the surcharge prohibition violates their Constitutional right to free speech.

The merchants, who include CVS Health Corp. and Safeway Inc., claim the surcharging ban prohibits them from characterizing their pricing in a truthful way because the law prohibits them from adding a surcharge – which they have to disclose to customers – but allows them to give discounts to customers who pay with cash.

“It’s so rare that the Supreme Court takes up a case that it’s really quite remarkable,” Targan says.

An alternative to surcharging

Despite anecdotal reports from attorneys and ISOs, one major retail group contends that merchants are much more concerned about lowering their swipe fees than they are about surcharging.

“Surcharging was brought up by the banking industry as an alternative to reducing fees, and surcharging is the exact opposite of what most retailers want,” says J. Craig Shearman, vice president of government affairs and public relations for the National Retail Federation.

Shearman said it’s possible that some retailers might at least want the right to surcharge as a negotiation tool that they can use to convince the card brands to lower swipe fees, although that would be an exception and not the rule.

“Merchants are not interested in surcharging, and have never been,” he says.

Shearman says most merchants don’t need surcharging because they already accept swipe fees as a cost of doing business, like their light bills and electricity. He also contends that surcharging would only deter customers from paying with credit cards, which would drive down sales for retailers.

“We don’t want them discouraging customers,” Burns says. “We want them to understand how much more people are spending if they are using a card and how it’s boosting revenues.”

While it remains to be seen whether more merchants introduce surcharging fees, Targan advises that industry participants keep an eye out on developments in this area. “It’s quite an expenditure of time and money to put a surcharge plan in place, so they would be well advised to make sure they’re doing it in compliance with the law before rolling it out,” she says.

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