Updated March 29th 7:47 PM
By: Lorde Astor West
The Class Action Landscape
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Since that time, the Settlement was rejected by a federal court and superseded by a new settlement dated as of September 2018.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.
According to current Visa Rules, 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, and provided that the Merchant complies with certain disclosure requirements. See Visa Core Rules and Visa Products and Service Rules (hereafter the “Visa Rules”), which can be found 
The surcharge can be imposed either at the Brand Level, in which case all Visa Credit Cards are surcharged the same amount, or at the Product Level, in which case each different kind of Visa Credit Card (e.g., Signature, Preferred, Traditional) is subject to its own surcharge limit. The Brand Level surcharge cap is equal to the Average Merchant Discount Rate applicable to all Visa Credit Card transactions over the past month or 12 months, at the Merchant’s option. The Product Level Surcharge limit is the Average Merchant Discount Rate applicable to cards of the relevant Credit Card Type, less the Debit Card Cost of Acceptance (explained below).
In either case, the Surcharge can include all fees included in the Merchant Discount Rate, up to an absolute ceiling maximum of 4%. Merchants may not impose a surcharge on Visa Debit Card or Visa Pre-Paid Card Transactions.
Similar to Visa’s Rules, MasterCard’s Rules (found ) provide that it is acceptable, in the United States, for a Merchant to impose either a Brand Level Surcharge or a Product Level Surcharge on MasterCard Credit Card Transactions, but not on MasterCard Debit or Pre-Paid Card Transactions.
For Brand Level Surcharging, the Surcharge cap is calculated based on the Average Merchant Discount Rate applicable to all MasterCard Credit Card Transactions for the Merchant, either over the last one month or 12 months, at the Merchant’s option.
For Product Level Surcharging, the surcharge cap is calculated based upon the Merchant’s Average Discount Rate applicable to the particular MasterCard product type being used in the transaction (e.g. Standard, Elite, World Elite, etc.), minus the Durbin Amendment cap for Debit transactions (explained below).
As with Visa’s Rules, there is an absolute ceiling on the Surcharge of 4%, and there are disclosure requirements, including notice to the Merchant’s Acquirer and notice to the Merchant’s consumers, as well as a requirement to provide the Surcharge amount on the transaction’s receipt.
Discover’s Operating Regulations (found ) permit a Merchant to assess a surcharge on Discover Card Transactions so long as the surcharge does not exceed the Merchant Fee Cost of the Discover Card sale, and so long as the Merchant also assesses a surcharge on transactions conducted using other Cards.
American Express Rules
American Express Merchant Regulations  do not expressly permit or prohibit surcharging. American Express does prohibit, however, a Merchant from charging any fee for use of an AMEX card that is not equally charged for use of any “Other Payment Product,” which AMEX defines as including, among other things, Debit and Pre-Paid cards.
Notification & Disclosure
In the event a Merchant wishes to assess a surcharge on MasterCard, Visa, or Discover Credit Card transactions, the rules require that the Merchant provide both the Network (MasterCard or Visa) and the Merchant’s Acquirer (the bank that processes the Credit Card payments) 30 days’ notice prior to implementing the surcharge. American Express has no such notice requirement.
In addition, disclosure must be made to the customer at the point of entry (for brick and mortar stores) or on the first website page that contains a Credit Card logo (for online stores). Such disclosure must indicate that a surcharge is imposed that is not greater than the cost of acceptance. In addition, disclosure must be made at the Point of Sale. This disclosure must include either the dollar amount of the surcharge (if the surcharge is a set fee) or the percentage of the surcharge (if the surcharge is a percentage of the sale amount). Finally, the exact amount of the surcharge must be included as a separate item on the transaction receipt, in the network authorization request, and in settlement.
No Surcharge Allowed on Debit Transactions - The Durbin Amendment
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. 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).
This regulatory framework of protecting Debit Card use from “excessive” fees has led to the aforementioned prohibition in the MasterCard and Visa rules against assessing a surcharge on Debit Card transactions.
As stated above, the Durbin Amendment exempts from federal regulation Debit Cards issued by banks with less than $10B in assets (“Exempt Banks”). One of our competitors takes the position that a surcharge can be assessed on transactions taking place with Debit Cards issued by Exempt Banks.
With respect to the ethical nature of assessing a surcharge on Credit Card transactions, we believe that credit card processing costs can and should be distributed so that customers who reap Credit Card rewards pay for those rewards. Reward-bearing Credit Cards carry higher processing fee costs than traditional Credit Cards and Debit Cards. In the absence of the right to surcharge, Merchants instead either have to bear the extra costs themselves - eroding their profit margin, or raise prices across the board, which punishes Cash and Debit Buyers.
SCRATCH takes surcharging to an even higher ethical level. Some of our competitors, even those that do not allow surcharges to be assessed on Debit Cards, charge a blanket processing rate on all Credit Cards, regardless of the interchange rate. In doing so, all Credit Card customers are blindly charged with high rates, even those with non-reward bearing Credit Cards. The SCRATCH model ensures that the customer is fairly charged the least possible amount, increasing customer retention and allowing Merchants to remain competitive in their pricing.
PCI Compliance is a significant issue whenever personal financial information is transmitted as part of a transaction. Any entity that stores, processes, and/or transmits Personally Identifiable Information (“PII” defined as information that identifies an individual cardholder or account) must follow the rules of PCI Compliance. All major payment facilitators and e-commerce platforms should be PCI Compliant. The SCRATCH technology works together with PCI Compliant technology but does not itself transmit or access any PII. This is because our technology does not require access to the entire 15 or 16 digit Debit or Credit Card number; the first set of numbers are sufficient. Thus while the SCRATCH technology is not required to fulfill the full range of PCI security protocols, the technology lives within a secure data ecosystem and therefore maintains the security of customer data.
Some States Prohibit Surcharging
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 states have no-surcharging laws in effect as of the time of this writing:
Colorado, Connecticut, Florida,* Kansas, Maine, Massachusetts, Oklahoma, 
* 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 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 the 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 proper to do so.
 Visa Rules § 126.96.36.199 (Rev. 13 October 2018); see also State Law Restrictions below  Visa Rules § 188.8.131.52 (Rev. 13 October 2018)  https://usa.visa.com/dam/VCOM/download/about-visa/visa-rules-public.pdf  Visa Rules § 184.108.40.206 (Rev. 13 October 2018) Glossary to Visa Core Rules and Visa Product and Service Rules (Rev. 14 April 2018) at pp. 981, 1016, 1028, and at Visa Surcharging Credit Cards-Q&A for Merchants at p. 1-2 - https://usa.visa.com/content/dam/VCOM/download/merchants/surcharging-faq-by-merchants.pdf  See id.  See id. 8] Visa Surcharging Credit Cards-Q&A for Merchants p. 2. See also Visa Rules § 220.127.116.11 (Rev. 13 October 2018)  https://www.mastercard.us/content/dam/mccom/global/documents/mastercard-rules.pdf  MasterCard Rules (Rev. 28 June 2018) §§ 5.11.2 - 18.104.22.168 at pp. 264 - 267  MasterCard Rules (Rev. 28 June 2018) § 22.214.171.124 at pp. 267-269 U.S. Merchant Class Settlement MasterCard Frequently Asked Questions - Merchant (February 2013) at p. 3 - https://www.mastercard.us/content/dam/mccom/en-us/documents/Merchant%20Surcharge_FAQ_02.14.13.pdfhttps://www.mastercard.us/content/dam/mccom/en-us/documents/Merchant%20Surcharge_FAQ_02.14.13.pdf  See FN 10 See FN 11  U.S. Merchant Class Settlement MasterCard Frequently Asked Questions - Merchant (revised February 2013) at p. 2  Id. at p. 1  MasterCard Rules (Rev. 28 June 2018) § 126.96.36.199 at p. 269  Id.  cdn2.hubspot.net/hubfs/400547/2011_Discover_Operating_Regulations.pdf  Discover Merchant Operating Regulations, Release 11.1 (April 15, 2011) § 2.5  https://icm.aexp-static.com/Internet/NGMS/US_en/Images/merchantpolicypdfs/US_RefGuide_S.pdf  American Express Merchant Regulations - U.S. (April 2018) § 3.2  See id. at p. 203  See FN 22  The Settlement states at Paragraph 42(g) that in the event the rate cap is no longer in effect Visa and MasterCard must allow the surcharging of Debit Card transactions under the same terms as Credit Card transactions. See https://www.paymentcardsettlement.com/en MasterCard’s online disclosure form can be found here - https://www.mastercard.us/en-us/surcharge-disclosure-webform.html#contentpar_text; Visa’s online form here - https://usa.visa.com/Forms/merchant-surcharge-notification-form.html; and Discover’s online form here - https://www.discovernetwork.com/downloads/Discover-Merchant-Surcharge-Notification-Form - Final.pdf  As an example, Visa’s sample consumer surcharge disclosure signage can be seen here - https://usa.visa.com/dam/VCOM/download/merchants/sample-surcharge-disclosure-signage.pdf  Id. at p.2  See FN 8; FN 17; and see also https://www.merchantmaverick.com/credit-card-surcharges/  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  Id. See https://www.digitaltransactions.net/commentary-how-a-new-ruling-sets-the-stage-for-surcharging-in-all-50-states/
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