Visa is addressing extra fees from small businesses ‘We are concerned about consumer surcharges.

Visa is addressing extra fees from small businesses 'We are concerned about consumer surcharges.

The Battle over Credit Card Surcharges: A Fair Game or an Unfair Burden?

In recent months, Visa Inc. has taken steps to lower the maximum amount retailers can charge consumers using the firm’s cards, in an effort to address the concerns of small businesses. As more businesses express frustration over the fees they pay to banks to accept electronic payments, they have turned to card surcharges as a way to cover those costs. However, this practice has faced criticism and regulation from Visa, resulting in an ongoing debate over the fairness and equity of surcharges.

The Rise of Card Surcharges

It has become increasingly common to see signs at small businesses across the country notifying customers of an additional fee if they pay with a credit card. Similarly, at restaurants, there may be two prices – one for cash payments and another for credit card transactions. According to a survey by payments consultancy Strawhecker Group, approximately 23% of small businesses charge an extra fee to customers using credit cards.

Free Speech and Supreme Court Rulings

The increased prevalence of card surcharges can be traced back to a 2017 US Supreme Court ruling. The Supreme Court ordered a closer examination of a New York law that prohibited merchants from imposing surcharges on credit card purchases, citing concerns that the law may infringe on retailers’ free speech rights. As a result, all but two states now allow merchants to impose surcharges on customers at checkout, with retailers navigating a complex landscape of rules, restrictions, and regulations imposed by credit card networks and various state and federal laws.

In New York, many bodegas and restaurants have turned to surcharges to offset the costs of accepting credit cards. While businesses are allowed to offer discounts for cash payments, they are not permitted to advertise one price and then add a surcharge at checkout if customers choose to pay with a card. This discrepancy has raised concerns among consumers, leading to an increase in complaints related to credit card surcharges.

Visa’s Response: Auditors and Fines

Visa has recently introduced measures to ensure proper application of surcharges by merchants. The company has deployed in-person auditors to verify compliance and has indicated that it could issue fines for non-compliance. Merchants found to be non-compliant may face warning letters for the first violation, followed by fines of $5,000 and $25,000 for subsequent violations. Additionally, Visa has reduced the maximum surcharge allowable for merchants from 4% to 3% starting this year.

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The Interchange Fees Debate

At the heart of the debate over card surcharges are the interchange fees. While Visa and Mastercard set the rates for these fees, it is the banks that issue the cards that primarily benefit from them. These fees, although small on a per-purchase basis, have been increasing as more consumers rely on credit cards. According to the Nilson Report industry publication, US merchants paid a record $160.7 billion in interchange fees in 2022, a 16.7% increase from the previous year.

The burden of these fees is not limited to small businesses. Even consultants, general contractors, and lawn-care providers – who traditionally received payments through check or bank transfers – now find themselves relying on surcharges to offset the cost of accepting credit cards.

The Benefits and Concerns of Surcharging

For many businesses, surcharging has become a necessary practice to navigate the costs associated with accepting credit cards. Card processors like CardX enable merchants to implement surcharges while complying with state laws and the rules set by Visa and Mastercard. CardX reported a 78% increase in payment volume in 2022, pointing to surcharging as a way for many merchants to accept cards for the first time.

While surcharging has its benefits, concerns over fairness and consistency have emerged. Consumers are becoming increasingly frustrated with the varying surcharge policies across different businesses. To address these concerns, Visa’s recent actions aim to ensure that surcharges are applied fairly and equitably.

As the battle over credit card surcharges unfolds, it remains a constant balancing act between small businesses seeking to cover costs and consumers demanding transparency and fairness in their transactions. The ongoing regulatory efforts by Visa and the complex landscape of state and federal laws highlight the need for a careful examination of the surcharging practice to strike a harmonious balance between the interests of businesses and consumers.