Jonesboro, AR – (JonesboroRightNow.com) – Aug 1, 2024 – In the complex world of small business ownership, businesses often encounter a range of fees that can impact their bottom line. One of the most significant costs associated with accepting card payments are payment processing fees that are incurred every time a customer uses a debit or credit card.
Recently, these fees have come under scrutiny.
The bottom line? Business cannot add surcharges to debit card purchases.
This restriction was established by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
We made a post on our Facebook page earlier in the week asking if any local businesses partook in the surcharge phenomenon.
We received hundreds of responses by way of comments and messages answering our question. A multitude of local businesses were named, and even chimed in themselves, for participating in the practice of surcharging for credit, debit, or both.
Some businesses even admitted to charging as much as 6.5% extra to customers who use cards.
A few readers picked up on why we were asking, and made comments regarding the Durbin Amendment.
JRN spoke with Kembralyn Redman, the AVP of Business Development at First Community Bank.
She explained that businesses are responsible for paying interchange fees on all card transactions. However, in the United States, merchants cannot add a surcharge to debit card or prepaid card transactions.
Redman said businesses are expected to absorb the cost of interchange fees on debit card or prepaid card purchases. For these cards, surcharging is prohibited even when the card is run as a signature-based transaction without the PIN.
While surcharging is prohibited for debit and prepaid cards, businesses do have the option to impose surcharges on credit card transactions. However, this practice must adhere to specific rules set by card networks and state regulations. For instance, merchants must clearly disclose any surcharge to customers before completing the transaction and cannot exceed the actual cost of processing the card payment.
Additionally, businesses might offer cash discounts as an alternative to cover card processing fees, which is a strategy allowed under current regulations. Some businesses get around the surcharge language by calling it a “convenience fee” or a “service fee.”
What happens if businesses are caught charging customers extra to use their debit card. no matter what it’s called?
Redman says businesses who apply surcharges to debit cards may face severe repercussions, including fines and sanctions from card networks like Visa and MasterCard. These penalties can affect a business’s ability to process card transactions and can lead to increased scrutiny from regulators.
Mastercard and Visa have extremely clear policies on their websites outlining permitted and restricted actions regarding surcharging.
Brian Emison, SVP of Operations at FNBC, told JRN, “Ultimately, it’s companies like Mastercard and Visa who have the ability to enforce their own policies.” He went on to say, “If they ever find out that you’re doing this, they can come and pull your machines and your licensing, along with any fines and fees they may have.”
Understanding the intricacies of card transaction fees and surcharges is crucial for businesses aiming to manage their costs effectively.
While interchange fees are a significant expense, regulations provide clear guidelines on how businesses can handle these costs.
For specific advice and to ensure compliance with the latest regulations, merchants should consult with their payment processors or financial institutions.