Compliance.

Last Update 8/1/2020
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The Class Action Landscape

 

Merchants have been fighting for the ability to surcharge for many years.  In 2005, a number of parties brought a class action lawsuit against MasterCard and Visa in an attempt to force the Credit Card Networks to change various rules that the Merchants felt were unfair.  One such rule prevented Merchants from surcharging their customers.  Although American Express rules did not explicitly prohibit the practice, AMEX did have a rule preventing Merchants from treating AMEX cards differently than MasterCard and Visa Cards, so in effect Merchants could not asses a surcharge on any Credit Card sale under the Card Networks’ rules.

Soon this 2005 Class Action was consolidated with other cases to form a larger class action called In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.  In 2013, a settlement was reached in that action which caused MasterCard and Visa to change their no-surcharging rules to allow the practice under certain circumstances (the “Settlement”).

Since that time, the Settlement was rejected by a federal court and superseded by a new settlement dated as of September 2018.  This 2018 settlement, however, only covers issues related to monetary damages, and the lawsuit over the Card Networks’ practices and policies (including regarding surcharging) remains open.  Nonetheless, the Card Networks have maintained the changes to their no-surcharging policies, and the practice of surcharging remains acceptable where it is not prohibited by state law.  There is, however, a web of federal and state laws and regulations as well as Card Network contractural rules that must be followed in order to properly assess a compliant surcharge.

Federal Laws, Rules, and Regulations

 
TILA, CCPA

There is no longer a Federal Law banning surcharges on credit cards.  There are Federal laws, rules, and regulations including the Durbin Amendment and the Consumer Credit Protection Act (CCPA), which includes the Truth In Lending Act (TILA), which prohibit the surcharging of debit cards and govern the manner in which Merchants are allowed and/or required to disclose credit card surcharges and discounts.  These rules and regulations must be complied with in order for a surcharge to be compliant.

The Durbin Amendment: No Surcharge Allowed on Debit Transactions

In 2010, the federal law governing Electronic Funds Transfers was amended to cap the fees that Card Networks are allowed to charge for the use of Debit and Pre-Paid Cards issued by large banks.[i] This change, called the Durbin Amendment, allowed the Federal reserve to pass regulations setting the maximum fee that large banks (those with over $10B in assets - “Regulated Banks”) could charge as interchange rates on the use of Debit and Pre-Paid Cards.  As of this writing the cap is set at $0.21 plus .05% of the transaction (with the ability to add a penny if the bank implements certain anti fraud protections).[ii]

This regulatory framework of protecting Debit Card use from “excessive” fees led Visa and MasterCard to adopt rules prohibiting the assessment of a surcharge on any Debit Card of Pre Paid Card transactions.

[i] 15 U.S.C. § 1693o-2 - This statute, which covers only Debit Cards (not Credit Cards) expressly protects the rights of Merchants to offer “discounts” but excludes from the definition of “discount” any raise in price from the posted amount

[ii] Id.

State Law

Notwithstanding that surcharging is allowed under federal law and the Credit Card Companies’ rules, it is illegal for Merchants to assess a Credit Card surcharge in some areas under state law.  The following 10 states have no-surcharging laws in effect as of the time of this writing:

California,* Colorado, Connecticut, Florida,* Kansas, Maine, Massachusetts, New York*, Oklahoma, and Texas.*[i]

 * Challenges have been raised to the constitutionality of the anti-surcharging legislation in these states, and in each of theses states the statute has been struck down by courts.  Thus it is likely that the laws will not be enforced in these states against Merchants who choose to asses a surcharge.  The remaining 6 states are hereafter referred to as “Disqualified States”.

Scratch does not support surcharging by Merchants located in the 6 Disqualified States.  Online Merchants located in any other state, however, can, in our view, legally assess a surcharge on a transaction initiated by a consumer located within one of the 6 Disqualified States. 

Some of our competitors take the view that a Merchant, wherever they are located, is prohibited from assessing a surcharge on a sale to a customer who places an online order from within a Disqualified State and that a Merchant located within a Disqualified State may legally assess a surcharge on an online sale to a customer living in a non-Disqualified State.  Scratch sees such an interpretation as both improper and a missed opportunity.  We believe that the wording of the laws in the Disqualified States clearly govern the actions of the Merchants doing business within their borders, not sales by Merchants over whom they have no jurisdiction.   This approach also leaves money on the table by not allowing a surcharge to be assessed on online sales where it is arguably proper to do so.

[i] See https://www.digitaltransactions.net/commentary-how-a-new-ruling-sets-the-stage-for-surcharging-in-all-50-states/

Credit Card Network Operating Rules

Visa Rules - Visa Core Rules and Visa Product and Service Rules
1.5.4.15 Credit Refund Requirements

 

In the AP Region (Australia, New Zealand), Europe Region, US Region, US Territory: The Merchant must refund any surcharge assessed on the Transaction amount. For partial refunds, the surcharge *3 amount must be pro-rated.

*3 In the AP Region (Australia): A Surcharge. In the US Region, US Territory: A US Credit Card Surcharge

1.5.5.2 Surcharges

 

A Merchant must not add any amount over the advertised or normal price to a Transaction, unless applicable laws or regulations expressly require that a Merchant be permitted to impose a surcharge. Any surcharge amount, if allowed, must be included in the Transaction amount and not collected separately.

In the AP Region (New Zealand): This does not apply under certain terms and conditions, as communicated to Members. Further information is available from Visa.In the US Region and US Territories: This does not apply to Credit Card Transactions, as specified in

Section 5.6.1.5, US Credit Card Surcharge Requirements – US Region and US Territories.

In the Europe Region: The Merchant must clearly communicate any surcharge amount to the

Cardholder, and the Cardholder must agree to the surcharge amount, before the Merchant initiates the Transaction.

5.6.1.3  Notification of Intent to Assess Surcharges – US Region and US Territories

 

Ensure that its Merchant notifies Visa and its Acquirer in writing at least 30 calendar days before assessing a US Credit Card Surcharge. Notice to Visa can be provided as specified on the “Merchant Surcharge Notification” link at www.visa.com. 

Inform Visa upon request of all notifications of intent to surcharge received from its Merchants

5.6.1.4 Similar Treatment of Visa Transactions – US Region and US Territories

 

A Merchant must not assess a US Credit Card Surcharge on Visa Credit Card Transactions in a specific payment channel if either: 

The Merchant is prohibited or effectively prohibited by a Competitive Credit Card Brand from assessing surcharges on the Competitive Credit Card Brand’s products in that payment channel. 

The Merchant’s ability to surcharge a Competitive Credit Card Brand in that payment channel is limited by that Competitive Credit Card Brand in any manner and the Merchant assesses a US Credit Card Surcharge on conditions that are not the same as the conditions on which the Merchant would be allowed to surcharge transactions of the Competitive Credit Card Brand in that payment channel, or on which the Merchant actually surcharges transactions of the Competitive Credit Card Brand in that payment channel, after accounting for any discounts or rebates offered at the Point-of-Transaction. 

This prohibition does not apply and a Merchant may assess a US Credit Card Surcharge on Visa Credit Card Transactions if one of the following: 

The Competitive Credit Card Cost of Acceptance or the Competitive Credit Card Product Cost of Acceptance to the Merchant is less than the Visa Credit Card Cost of Acceptance or Visa Credit Card Product Cost of Acceptance to the Merchant and the Competitive Credit Card Brand does not prohibit or effectively prohibit surcharging credit card transactions. 

The Competitive Credit Card Brand prohibits or effectively prohibits surcharging on credit cards and the Merchant actually surcharges the Competitive Credit Card Brand’s transactions in an amount at least equal to the lesser of either: 

  • The Competitive Credit Card Cost of Acceptance 
  • The amount of the US Credit Card Surcharge imposed on a Visa Credit Card 

There is an agreement between the Merchant and the Competitive Credit Card Brand in which the Merchant waives or in any other way restrains or limits its ability to surcharge transactions on that Competitive Credit Card Brand, provided that:

  • The agreement is for a fixed duration, is not subject to an “evergreen clause” (i.e., automatically renewed unless terminated by the parties to the agreement) and is not a standard agreement generally offered by the Competitive Credit Card Brand to multiple merchants.
  •  The Merchant’s acceptance of the Competitive Credit Card Brand as payment for goods or services is unrelated to and not conditional upon the Merchant’s entry into such agreement. – The agreement is supported by the exchange of material value. 
  • The agreement expressly specifies a price under which the Merchant may accept the Competitive Credit Card Brand’s products and surcharge those transactions up to the Merchant’s Merchant Discount Rate for the Competitive Credit Card Brand, after accounting for any discounts or rebates offered by the Merchant at the Point-of-Transaction. 

1 This provision does not apply if the Competitive Credit Card Brand prohibits only surcharging for an amount greater than the Competitive Credit Card Cost of Acceptance.

5.6.1.5 US Credit Card Surcharge Requirements – US Region and US Territories In the US Region or a US Territory: 

 

A Merchant may assess a fixed or variable US Credit Card Surcharge on a Visa Credit Card Transaction, subject to applicable laws or regulations. The Merchant may assess a US Credit Card Surcharge by either:

Applying the same fixed or variable US Credit Card Surcharge to all Visa Credit Card Transactions (brand level)

Applying the same fixed or variable US Credit Card Surcharge to all Visa Transactions of the same credit product type (product level)

The US Credit Card Surcharge at the brand level must be the same for all Visa Credit Card Transactions, regardless of the Card’s Issuer or the product type, and after accounting for any discounts or rebates offered by the Merchant on Visa Credit Card Transactions at the Point-of Transaction.

The US Credit Card Surcharge at the product level must be the same for Transactions on a particular Visa Credit Card product type, regardless of the Card’s Issuer, and after accounting for any discounts or rebates offered by the Merchant on Visa Credit Card Transactions on the product type at the Point-of-Transaction.

A Merchant must not assess a US Credit Card Surcharge on Visa Credit Card Transactions at both the brand and product level.

The US Credit Card Surcharge must be included in the Transaction amount.

Term Description
Maximum Surcharge Cap – US Region and US Territories In the US Region or a US Territory, the maximum US Credit Card Surcharge that a Merchant may assess on a Visa Credit Card Transaction, as may be revised from time to time and that is communicated via the Visa public website, www.visa.com.
Visa Credit Card Surcharge Cap – US Region and US Territories The average Merchant Discount Rate that a Merchant in the US Region or a US Territory pays to its Acquirer for Credit Card Transactions completed with a specific Visa product type.

The average Merchant Discount Rate is either:

  • Calculated based on Credit Card Transactions conducted by the Merchant for the preceding 12 months
  • At any given point in time, the actual Merchant Discount Rate paid in the time period covered by the Merchant’s most recent statement relating to Credit Card Transactions
Merchant Discount Rate – US Region and US Territories In the US Region, US Territory: The fee, expressed as a percentage of the total Transaction amount that a Merchant pays to its Acquirer or Visa Net Processor for transacting on a credit card brand. The Merchant Discount Rate includes both:

The interchange rate, network set fees associated with the processing of a Transaction, network set fees associated with the acceptance of the network’s brand, and the Acquirer set processing fees associated with the processing of a Transaction, irrespective of whether such fees and costs are paid via the Merchant discount or by check, withholding, offset, or otherwise; and

Any other services for which the Acquirer is paid via the mechanism of the per transaction merchant discount fee.

Other than the fees listed in the first bullet above, the Merchant Discount Rate excludes any fees (such as the cost of rental of point-of sale terminal equipment, for example) that are invoiced separately or not paid via the mechanism of the per transaction merchant discount fee
Competitive Credit Card Brand – US Region and US Territories In the US Region, US Territory: Any brand of credit card or electronic credit payment form of a nationally accepted payment network other than Visa, including without limitation MasterCard, American Express, Discover, and PayPal.
Competitive Credit Card Cost of Acceptance – US In the US Region, US Territory: The Merchant’s average Merchant Discount Rate applicable to transactions on a Competitive Credit Card
Competitive Credit Card Product – US Region and US Territories In the US Region, US Territory: Any product within a brand of credit card or electronic credit payment form of a nationally accepted payment network other than Visa, including without limitation MasterCard, American Express, Discover, and PayPal.
Competitive Credit Card Product Cost of Acceptance – US Region and US Territories In the US Region, US Territory: The Merchant’s average effective Merchant Discount Rate applicable to transactions on the Competitive Credit Card Product at the Merchant for the preceding one or 12 months, at the Merchant’s option.
US Credit Card Surcharge – US Region and US A fee assessed to a Cardholder by a Merchant in the US Region or a US
Transaction on which a fee is assessed (where permitted) Shown separately and clearly:

  • Convenience Fee
  • Service Fee
  • Surcharge. The amount must be shown separately on the front of the receipt in the same type and size of font as other wording on the Transaction Receipt.
  • Wire Transfer Money Order Fee
  • Any other fees

Fees and Surcharges must not be identified as a Visa-imposed charge.
Transaction Using a Stored Credential Where surcharging is permitted, acknowledgement of any surcharge assessed and the associated disclosures. Table 5-19: Requirements for Prepayments and Transactions Using Stored Credentials (Effective through 24 January 2020) (continued)
Disclosure and Agreement Where surcharging is permitted, acknowledgment of any surcharge assessed and the associated disclosures Table 5-20: General Requirements for Partial Payments, Advance Payments, and Transactions Using Stored Credentials (Effective 25 January 2020)
5.6.1.6 US Credit Card Surcharge Maximum Amount – US Region and US Territories in the US Region or a US Territory: 

 

A US Credit Card Surcharge assessed at the brand level, as specified in Section 5.6.1.5, US Credit Card Surcharge Requirements

  • US Region and US Territories must not exceed the Merchant’s Visa Surcharge Cap. In the US Region or a US Territory: A US Credit Card Surcharge assessed at the product level, as specified in Section 5.6.1.5, US Credit Card Surcharge Requirements
  • US Region and US Territories must not exceed the Merchant’s Visa Credit Card Surcharge Cap less the Debit Card Cost of Acceptance.

In no case may the US Credit Card Surcharge amount exceed the Maximum Surcharge Cap.

5.6.1.7 US Credit Card Surcharge Disclosure Requirements – US Region and US Territories

 

In the US Region or a US Territory: A Merchant must, at both the point of entry into the Merchant Outlet and the Point-of-Transaction, clearly and prominently disclose any US Credit Card Surcharge that will be assessed.

The disclosure at the Point-of-Transaction must include all of the following:

The exact amount or percentage of the US Credit Card Surcharge

A statement that the US Credit Card Surcharge is being assessed by the Merchant and is only applicable to credit Transactions.

A statement that the US Credit Card Surcharge amount is not greater than the applicable Merchant Discount Rate for Visa Credit Card Transactions at the Merchant.

Merchants with Acceptance Devices that offer Cardholder choice for debit Transactions in the form of “credit” and “debit” buttons must ensure that:

  • Debit Card Transactions are not assessed a US Credit Card Surcharge
  • It is made clear to the Cardholder that surcharges are not permitted on debit Transactions regardless whether a Cardholder selects the “credit” or “debit” button.

For an Electronic Commerce Transaction, a Mail/Phone Order Transaction, and Unattended Transaction, the Cardholder must be provided the opportunity to cancel the Transaction subsequent to the US Credit Card Surcharge disclosure.

For example, the requirement for clear and prominent disclosure will be satisfied if the disclosure is made consistent with Table 5-5, Surcharge Disclosure – US Region and US Territories:

Transaction Type Point of Entry Point of Transaction
Face-to-Face Transaction Main entrance(s) of the Merchant Outlet, in a minimum 32-point Arial font, but in any case no smaller or less prominent than surrounding text Every customer checkout or payment location, in a minimum 16-point Arial font, but in any case no smaller or less prominent than surrounding text
Electronic Commerce Transaction The first page that references credit card brands accepted, in a minimum 10-point Arial font, but in any case no smaller or less prominent than surrounding text Checkout page, in a minimum 10-point Arial font, but in any case no smaller or less prominent than surrounding text
Mail order Transaction The first page of the catalog that references credit card brands accepted, in a minimum 8-point Arial font, but in any case no smaller or less prominent than surrounding text Mail order form, in a minimum 10-point Arial font, but in any case no smaller or less prominent than surrounding text
Telephone order Transaction The first page of the catalog that references credit card brands accepted, in a minimum 8-point Arial font, but in any case no smaller or less prominent than surrounding text Verbal notice from the telephone order clerk, including US Credit Card Surcharge amount
Unattended Cardholder Activated Terminal Main entrance(s) of the Merchant Outlet (if applicable) (for example: gas [petrol] station store) in a minimum 32-point Arial font, but in any case no smaller or less prominent than surrounding text On the Unattended Cardholder-Activated Terminal or virtual disclosure on the payment terminal screen, in a minimum 16-point Arial font, but in any case no smaller or less prominent than surrounding text
5.9.9.3 Dynamic Currency Conversion (DCC) – Merchant and ATM Requirements

 

A Merchant or ATM Acquirer that offers Dynamic Currency Conversion (DCC) must comply with all of the following:

  • In the US Region or a US Territory: Include the US Credit Card Surcharge amount, if assessed, in the conversion
  • In the AP Region (Australia): Include any Surcharge amount, if assessed, in the conversion
5.9.19.1 Visa Rent Payment Program – US Region

 

Effective 18 April 2020 In the US Region: To participate in the Visa Rent Payment Program, an Acquirer must do all of the following:

  • Register with Visa and provide the specific amount or percentage of the fee assessed by each Merchant or Sponsored Merchant, by product
  • Ensure that only a Merchant or Sponsored Merchant classified with MCC 6513 (Real Estate Agents and Managers) participates in the program
  • Obtain a Merchant Verification Value (MVV) for each participating Merchant or Payment Facilitator and include it in the Authorization Request and Clearing Record.

Process all Visa rent payment program Transactions through VisaNet.

A participating Merchant or Sponsored Merchant (including through their Payment Facilitator) may assess a fee to the Cardholder only in the Card-Absent Environment for either a single Transaction or Recurring Transaction(s).

If assessed for a Visa Debit Card Transaction, the fee must comply with all of the following:

  • Not exceed USD 10
  • Included in the final Transaction amount and in the surcharge field of the Clearing Record
  • Be clearly disclosed to the Cardholder before the completion of the Transaction. The Cardholder must be given the opportunity to cancel after the fee is disclosed.
  • Not be assessed in addition to a Service Fee, a Convenience Fee, or any other fee
  • Not required to be equally applied to an alternative method of payment
  • Not be greater than a fee applied to any other general-purpose payment debit card

 

If assessed for a Visa Credit Card Transaction, the fee must comply with all of the following as though the fee is deemed a Surcharge:

  • Section 5.6.1.4, Similar Treatment of Visa Transactions - US Region and US Territories
  • Section 5.6.1.7, US Credit Card Surcharge Disclosure Requirements – US Region and US Territories

 

11.4.1 Dispute and Dispute Response Amount General Requirements

 

If the Dispute is for a partial amount, any surcharge amount must be pro-rated.

11.12.1 Compliance Filing Conditions

 

Unless otherwise specified, a Member may file for Compliance if all of the following occur:

  • A violation of the Visa Rules occurred that is not related to an Account Data Compromise Event.
  • The Member has no Dispute, Dispute Response, or pre-Arbitration right.
  • The Member incurred or will incur a financial loss as a direct result of the violation.*1
  • The Member would not have incurred the financial loss had the violation not occurred.*1
  • The Member made a pre-Compliance attempt to resolve the dispute with the opposing Member and the opposing Member does not accept financial liability

The pre-Compliance attempt must include all of the following:

  • Planned Compliance filing date
  • All pertinent documentation
  • Specific violation of the Visa Rules

*1 This does not apply to a US Credit Card Surcharge violation, as specified in Section 11.12.4, Compliance Right for Improperly Assessed Surcharge – US Region and US Territories

 

11.12.4 Compliance Right for Improperly Assessed Surcharge – US Region and US Territories

 

A Member may file for Compliance if a Merchant in the US Region or in a US Territory assessed a US Credit Card Surcharge under one of the following conditions:

US Credit Card Surcharge amount exceeds the applicable US Credit Card Surcharge amount as specified in the Visa Rules

US Credit Card Surcharge was assessed on a Transaction in a manner that does not comply with the Visa Rules

US Credit Card Surcharge was assessed on a Transaction type where surcharging is not permitted

US Credit Card Surcharge was assessed by a third party

US Credit Card Surcharge was not disclosed as specified in the Visa Rules

US Credit Card Surcharge amount did not appear on the Transaction Receipt as specified in the Visa Rules

US Credit Card Surcharge amount was not refunded as specified in the Visa Rules

For a Dynamic Currency Conversion Transaction, US Credit Card Surcharge amount was not included in the conversion

Convenience Fee, Service Fee, currency conversion fee, commission, or Wire Transfer Money, Order service fee was applied on a Transaction that included a US Credit Card Surcharge

The Member must only request Compliance for the US Credit Card Surcharge amount.

The Member is not required to have incurred a financial loss as a direct result of the violation. If the Issuer has billed the Transaction that included the US Credit Card Surcharge to the Cardholder, the Issuer must credit the Cardholder for the US Credit Card Surcharge amount.

A Member must not file for Compliance if the Merchant properly assessed a US Credit Card

Surcharge as permitted in the Visa Rules.

 

About SCRATCHWARE

Scratchware is a cloud-native platform built on a proprietary rapid development framework comprising small building block apps and services that run on aggregate data to deliver enhanced digital commerce and custom agnostic payments capabilities for companies.

What We Offer

SCRATCHWARE Provides: Profit Recovery Services including, Compliant Surcharging as a Service, Cash Discounting, Service Fee Delivery, Convenience Fees, Agnostic Intelligent Payments Routing, Data Aggregation, Secure Global Cloud APIs, Data Vaulting, Tokenization, Frictionless Commerce, Data Portability, Cloud Services, and Visualized Data.

Surcharging Service Areas

We provide surcharging service to the entire US, US territories, and Canada except in locations where Surcharging is prohibited. Service Fees are limited to authorized MCC Codes Only.

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