Q & A – Can a business pick and choose who pays a surcharge?

The question this week comes from an agent concerning a large client he’s had for a couple of years.  Work is in progress for a custom solution which will allow the business to surcharge through a virtual terminal environment.  However, will compliance issues prevent this business from picking and choosing which customers receive the surcharge?

This client has 3 ½ to 4 ½ million dollars in monthly volume.  They are a B2B supplier of industrial supplies.  The vast majority of their clients are large ones who make large purchases.  Orders are placed by phone and shipped anywhere.  There are also a significant number of in-person sales.  Customers walk into the building and make smaller purchases.  

The agent is hesitant to agree for a client of this size to surcharge for in-person purchases but not phone order purchases.  Are there regulations requiring surcharge to all or none?  The agent’s understanding is that surcharge would be more apt than cash discounting to require a fee to all or none.

MY ANSWER

After further research, I am not aware of any such restriction at all when reading card brand rules.  Most people in our industry would expect just the opposite regarding surcharge and cash discounting.  Cash discounting would be applied to everyone, no option to pick or choose.  However, surcharge has no restriction.  Even Cash discounting ISOs have started implementing “waive the fee” options.

The first question to answer for this issue is, “compliant with who – the government or Visa/MasterCard?”

Keep in mind I am not an attorney; this is not legal advice.  But I’m not aware of any federal or even state regulation restricting a business from choosing to whom the surcharge is applied.  States which allow surcharge, allow the merchants, at their sole discretion, to add a surcharge to a transaction for any reason.

Thus, this is not a government or federal issue.

In the card brand rules, the only stated restriction is that a surcharge cannot be charged on prepaid or debit cards, only credit.  I definitely haven’t heard of a single instance of Visa / MasterCard taking compliance action for a merchant not surcharging everyone.

I know a lot of merchants with a similar set-up to which this agent refers.  It’s called dual-mid and is definitely not a big red-flag hot button issue for card brands. 

EXAMPLE:   Google – “surcharging rules Visa” and read over their rules.  There is nothing mentioned in that search about the importance of charging everybody.  Therefore, that issue is definitely not something they’re promoting.  

My understanding is that this can be set up not even dual mid.  You can just have a technology solution which provides the ability to waive the surcharge any time.

Even if card brands did have a rule prohibiting that, how could it be enforced?  Would merchants be allowed to give better deals because they’re a good customer but not because they’re an upset customer?  If merchants are allowed to give a different deal, then they’re allowed to give a different deal!

To summarize, I am not aware of anything that says merchants can’t discriminate in levying a surcharge.  Rather, specific rules say you CAN discriminate in based on specific types of credit cards.  There are certain card types which can NOT have a surcharge, but that doesn’t mean merchants HAVE to surcharge all the other card types.

I am very interested to post this publicly to see what conversations we start.  Please engage with your comments and experiences.