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Surging credit surcharges in the US (2019 - 2023)?

Old Sep 21, 2019, 12:42 pm
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Last edit by: rasheed
Some key factors of credit surcharging as it applies to the US market only.
-Disclosure and itemization is key. You can still report such issues if there is indeed lack of proper disclosure AND itemization. Itemization is going to be very unlikely unless the terminal is specifically setup to create that line item. Those merchants who just tell you and "add it to the card total" are not compliant. They may not care even with complaints made to Visa/MC/Discover/AmEx.
-Visa's complaint form: https://usa.visa.com/Forms/visa-rules.html Visa does review all complaints and asks the merchant/processor for a response, but you might never hear back from them on the outcome. Sometimes, you will see a minor change at the store. Visa also does covert operations to visit such merchants in certain situations.
-Mastercard's complaint email: [email protected]
-Discover and AmEx as "closed loop" systems require any complaints be done directly as a cardholder under their current merchant dispute options.
-The current surcharge limit in the US is 4%
-Mastercard's website on this topic: https://www.mastercard.us/en-us/merc...rge-rules.html
-Mastercard's document on this topic: https://www.mastercard.us/content/da...arge_Rules.pdf
-Elavon's guidance for merchants to get surcharge allowance: https://website.elavon.com/cbsettlement.html
-Visa and Mastercard allow product-level surcharges (such as only Signature or World/World Elite), but that seems really hard to communicate and implement, so brand-level (all Visa/Mastercard/etc.) is the only kind I have seen so far.
-AmEx does not require fee itemization.
California NO LONGER feels it can go against merchants who add surcharges (even beyond the initial "industries" that were allowed in the court ruling):
Same also applies in Florida and Texas.
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Surging credit surcharges in the US (2019 - 2023)?

Old Sep 21, 2019, 12:18 pm
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Surging credit surcharges in the US (2019 - 2023)?

I appreciate the latest SUB offer or new card rebate program thread like anyone else, but I saw my first, not handwritten surcharge sign on credit card surcharges recently. I am unsure if this will become a trend. I know we have some/many people who say that they would stop patronizing businesses (most are small today?) if they started charging extra to use their reward card, but I am unsure if that type of boycott is really effective. It is also important to remember that the 2013 legal settlement that caused the change of surcharge rules at the network level were driven by the big merchants (Wal-Mart and the related). Even if they have not yet done the surcharge implementation, I feel somewhat confident it just takes one of them to get away with it successfully for everyone to follow. We have seen this with the airline miles programs every time.

More important though, I am going to go even further and say that if surcharges were widely implemented soon after the settlement (for most parts of the country) or in some key states (California no longer enforces its no surcharge statute), all of these millionaire bloggers and much of the big miles ecosystem may have never happened because I don't think you could have created enough revenue incentive to pay all of these referral fees and bonuses. There just would not be the card volume today, and we would be a society of mostly debit/cash/ACH/check customer (like it used to be).

Surcharges have been a bit of a pain for awhile. In some cases, it reduced card options (Costco is most famous, but merchants not taking AmEx or Discover is very common). It was mostly smaller merchants, true. The most visible, frequent used situation was gas stations with dual cash and credit pricing. Yes, I avoided these stations for the most part, but did buy gift cards if I wanted to use one (Safeway gas comes to mind). The handwritten signs are most famous. Salons would ask for an extra $1 which might equate to 1 to 1.5% surcharge. It would be up to me especially if I knew this was the location policy.

There are some other merchants where it was expected or allowed. Taxes (federal/local) would charge something +/- 2% which was barely okay with some of the better rebate/points cards. Other entities like schools also had those situations. Again, I either would be okay with it or send a check/ACH payment. In all of these cases though, the surcharge with itemized and disclosed before I entered my card info.

Some online merchants have done incentives to encourage cash deposits or gift card purchases (which have a pretty high breakage/unredeemed rate) like Uber, Amazon, Disney, Southwest and others.

It is more a crystal ball to the future of these reward cards. Maybe high AFs will work to keep the benefits, but if each time I used the card I have to consider the surcharge, I am not likely to use that card (especially when the surcharge is above 2.5%). Maybe I can get away with the large places I visit (hotels/airlines/big stores) who will likely negotiate the best rates to continue taking my card without an extra charge, but if everyone only used their card at Costco (for example) or only in EU (which has a very low regulated fee) and didn't have a mix of other merchants (or pay interest/other fees), they would need to reduce the amount of rewards offered on spend. We may have forgotten the surcharges that were very common in EU with online airlines and large retail chains before the regulation. Australia is pretty bad when it comes to large hotel chains and other services (walking across the street from a Marriott in Sydney to get cash at the ATM to pay my checkout bill was best option).

Here is the sign in question (merchant is running an Elavon system - this is one also offered by Costco to its business members):

Surcharge notice posted.

The sign does attempt to follow all customer notification rules, and the surcharge is handled by the terminal automatically. It is not "added to the total" by the merchant. It creates the line item detail (as required) which is pretty rare among POS terminals. This also means the merchant doesn't decide what is debit or credit, the terminal makes the call.
Elavon's surcharge info site: https://website.elavon.com/cbsettlement.html

What happens with more merchants to push back on this cost of business is unclear, but I personally feel because you have newer situations where very large populations (California government) are not going to pursue such surcharge "violations", it really opens the door. I expect any other state that has such statutes currently enforceable to also get them ruled as invalid by federal courts. Of course, the marketplace may limit how much surcharging actually happen, but perhaps I felt the same about the usefulness of airlines reward programs. I don't think we have seen any good news overall in those program changes.
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Old Sep 21, 2019, 4:11 pm
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Discover had cash back rewards back in the 1980s and is arguably the first card to have done so. Given that they weren't targeted towards travelers like AmEx was/is, I feel like they would have reduced rewards/interchange a lot more* long before now if it impacted acceptance that much. In addition, I'm pretty sure Visa/MC were commonly accepted in the US at least as far back as the 2000s, but probably not used as much for smaller purchases.

As for the prevalence of surcharges, I don't feel as if they've gotten that much more common. I only know of one merchant that imposed surcharges recently around here, for instance, and that one previously had a hard $5 minimum (and IIRC was cash only when I was in college back in the 2000s). If anything, minimums are more common among stores in general, with surcharges only really being an accepted thing for gas stations.

That all said, it's possible that a larger retailer or few imposing surcharges may end up contributing towards their acceptability among merchants/customers in general--especially if they properly follow all of the card network rules surrounding them. My main complaints with surcharges are that the smaller stores that impose them almost always impose them for all cards and not solely for credit cards, followed by surcharging more than they're likely paying (for instance, the 10c card fee on a typical vending machine transaction at my work is more than the allowed 4%).

* Assuming they did. All I know is that they may be as expensive as Visa/MC is now (or slightly more), but definitely less expensive than AmEx.
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Old Sep 22, 2019, 9:35 am
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These merchant surcharges are wrong. Either accept it as a cost of doing business or go back to cash only.
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Old Sep 22, 2019, 9:47 am
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Originally Posted by EasternTraveler
These merchant surcharges are wrong. Either accept it as a cost of doing business or go back to cash only.
Agreed. In a physical store if they tried adding 3% at the cash register I would just walk out leaving my purchase sitting right on the counter. ....and I would never return.
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Old Sep 22, 2019, 10:32 am
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Originally Posted by EasternTraveler
..... accept it as a cost of doing business......
This is what they have done for decades due to the prohibitions on surcharges. Every cost of business is passed through to customers, which means everyone is paying card transaction fees.

For large merchants, allowing surcharges is not about collecting them, it's a structural change which allows them to negotiate lower fees because they have the option to pass through variable fees from high priced networks. Instead of announcing that they will "no longer accept" a particular type of card, the merchant can announce that there "will be an X% surcharge to pay with" those cards. It will transform negotiations between merchants and networks, and while there will be some public grandstanding much of it will be invisible.
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Old Sep 22, 2019, 12:24 pm
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Beyond the gas stations in California and utilities/government agencies that contract with a third party to process payment with a processing fee, I do not see much cash price/credit price going on. If I went to a merchant that was surcharging 3% on top of the cost I would look at the prices they were charging and make a decision accordingly. If a business surcharges, I expect it to offer a lower price for its products. I expect if Starbucks with no surcharge is $5 for the coffee that the local place who is surcharging 3% is 4.85 or something along those lines. If they are charging the same $5 as a place that does not surcharge, I may or may not purchase today, but I definitely would not purchase in the future.

I go to a grocery store that recently imposed a $5 minimum purchase policy (small ethnic store). Sometimes I would go in and only spend $3 or $4. I went yesterday. I found $2 of items I wanted and also saw a third item at $1.49 I wanted. The $1.49 item was from their bakery and it is going to be a total loss at the end of the night when it sits there unsold. There is no way they are better off not making this sale than paying the card processing cost. Due to the card minimum, and not wanting to deal with coins as change, I did not take the $1.49 item. I simply took the $2 of items to pay, gave them easily $2, and left. Based on this and some other factors including far less traffic at this store than a similar nearby ethnic competitor, I expect this business to fail soon. They may think the card minimum is somehow helping them but it is not.
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Old Sep 22, 2019, 3:42 pm
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As the owner of a small business (albeit not located in the United States), I think these kinds of practices are in poor taste.

It's important for me to impart upon my clients a sense of value, as well as simplicity and transparency in understanding their transaction. Imposing a surcharge achieves neither of these.
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Old Sep 22, 2019, 4:17 pm
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Originally Posted by storewanderer
They may think the card minimum is somehow helping them but it is not.
A couple of thoughts on the card minimum issue. First, if the merchant processor charges a per transaction fee plus the percentage (very common), I think a small card minimum ($5 to $10) is very acceptable to me versus a surcharge (again, to avoid a surcharge issue). The minimum for credit (not debit) is allowed to be set by the merchant at $10 in the US (not overseas). I think it is a bit too high to capture smaller transactions (lunch, etc.), but that is what the rule was set.

Now, Visa's contactless campaign is pretty specifically focused on small transactions. They are trying to pickup small transactions that might have been paid for cash before. That isn't our crowd, I know. Any of these minimums and surcharges will just push people back to debit or cash I believe.

If I am spending $25 (which I was at the merchant who had the 3% sign), I think covering 75 cents of transaction cost shouldn't have created a need for a surcharge. I did use my debit in this case just to see how the terminal handles it (as well as avoiding the fee). Now that merchant processors are doing a much better job of explaining the process for doing these surcharges and appearing to program the terminals to handle these, we shall see what happens. To have Worldpay and Elavon talking surcharge much more openly means bad news some way, surcharges or it may mean some sort of interchange relief to come to the high tier reward cards acceptance. That will mean reduction in benefits or rewards to cardholders....
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Old Sep 22, 2019, 4:53 pm
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I am going to call this particular high priced hot dog stand ($2.50 for a hot dog) and tell the owner that charging 4% on top of everything else is the end of my visits. I refuse to have a 25ish bill go up to 35ish. He added some other fees on there too. If he has the attitude it stays I go. If he sounds like he cares, I may not.
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Old Sep 22, 2019, 4:55 pm
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Based on the previous comments, it seems that surcharges aren't well liked if the choice is using cash or paying them to use any card. However, would people be more okay with them if the choice was cash, debit card or paying the surcharge to use a credit card? Most people do carry at least one debit card around, after all, so there'd be less of a need to go find an ATM to avoid a surcharge. Plus, there are segments of the population that prefer not to use credit, so doing surcharges correctly might not cause certain stores to lose many customers (if at all).

Of course, the difficulty with that is that some stores have to pay the same 2.5-3% regardless of the type of card (e.g. every merchant that uses Square), so there might not be any value in trying to differentiate. Which is probably why the places that do surcharge in my experience do it for all cards.
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Old Sep 22, 2019, 5:40 pm
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There is a restaurant near me that imposes a flat surcharge per transaction, rather than a percentage.

I was actually shocked at a souvenir store in Slovakia to see a 50 Euro credit card minimum! On top of that, when I tried buy an item with cash, the clerk refused to accept my banknote because someone had scrawled on one side with a ballpoint.
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Old Sep 22, 2019, 6:25 pm
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This practice is growing rapidly in New York City, especially at bodegas and restaurants, particularly in Brooklyn. I think there isn't much of an outcry yet because the rules are unclear and inconsistent throughout the country and across card types. People just don't know what to say to a merchant who violates them. I was stung at a store in Brooklyn a few weeks ago and it was a flat amount -- 49 cents, I think, on a charge of $14 and change. My card had already been run and I noticed the sign among countless others as the receipt spit out. I protested and the person in charge gave me $15 in cash and told me I could take my business elsewhere (which I did, happily). I appreciated the inadvertent small MS success, but had I been given proper notice? I see from Visa's rules linked to in the wiki that there must be a sign at the point of entry. Perhaps there was one and I missed it, but I didn't know that stipulation.

It seems that in New York a surcharge can be levied only if the amount is displayed in dollars and cents along with the cash price, but it's hard to imagine that happening. I just don't think I'd ever pick up a restaurant menu and see two price lists. And countless small grocery stores don't display prices at all for certain items. When a merchant complies with Visa's rules but not with New York's, to whom do we complain? What do we do when there's no person present, as in the case of the vending machine's 10-cent surcharge noted above -- call the supplier or the card issuer? Is it worth it for ten cents?

We need a clear best procedure for reporting and rectifying these incidents, just as we have one for DCC. And I'd report a DCC of ten cents. But the rules for DCC seem much clearer and the violations much easier to dispute.

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Old Sep 22, 2019, 6:56 pm
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These things tend to happen geographcially. Thus, they sprout up in a neighborhood or a town. Bottom line is that consumers don't have much of a choice.

The flip side here is that the transaction fees are never "free" they are simply included. Means that cash customers are supporting CC customers and there are many cash customers who will be quite happy as this practice spreads.
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Old Sep 22, 2019, 7:35 pm
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I remember places doing this about 15 years ago and for some reason it disappeared, almost overnight. Now it seems to be a California phenomenon reaching out all over the rest of the country. Not really sure what's brought this back...

One thing I will say, all these "business people" want to throw a fit over accepting cards and then will complain they are losing business to Amazon. Well Amazon accepts credit cards without an issue. If you're not going to run your business right then you've got no right to complain when customers leave and don't come back.

I think part of the reason why it's more of an issue in larger cities, is because there are enough people who will go into a store for the first time along with some who will deal with it anyway, which makes it worthwhile enough. In a smaller town, discouraging customers doesn't end well for the business.
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Old Sep 22, 2019, 7:58 pm
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Originally Posted by sethweinstein
This practice is growing rapidly in New York City, especially at bodegas and restaurants, particularly in Brooklyn.
NYC has always had a reputation of being less card friendly than most other places in the US. It's just in the past, a lot of places could get away with being cash only (vs. now where it's much harder if not impossible). I don't think there's been any real change in what merchants there think of cards, just an acknowledgement of market reality and taking advantage of the rules anywhere they can.

Originally Posted by sethweinstein
We need a clear best procedure for reporting and rectifying these incidents, just as we have one for DCC. And I'd report a DCC of ten cents. But the rules for DCC seem much clearer and the violations much easier to dispute.
I feel like the complaint forms linked in the thread's wiki (or well, Visa's anyway) are fairly clear as to what constitutes a rule violation. In short, any extra fee that works out to >4% of the purchase price and/or surcharges imposed for debit cards quality. (There are also specific notification/signage requirements, but I consider those lower priority compared to the previous two issues--not to mention that reporting a merchant for not notifying Visa or MC before beginning to surcharge is problematic for obvious reasons.)

Originally Posted by HotelHacker
Well Amazon accepts credit cards without an issue.
About that...

(Granted, they're not likely to stop accepting cards and/or restrict their use any time soon, but it does show they're interested in cutting back on their interchange fees. And who knows, if the vast majority of their customers do eventually decide to buy stuff online via ACH or something, they might be able to justify surcharging the rest.)
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