As of April 15, 2023, significant changes to Visa surcharge rules have taken effect. The new rules impact both merchants and consumers and are aimed at increasing transparency and fairness in the payment processing industry.
The most directly impacted merchants are those that are currently using a cash discount program that is applied at the point of sale.
Visa surcharges are fees that merchants charge customers for using a Visa credit or debit card to make a purchase. These fees are in addition to the price of the goods or services being purchased and are typically used by merchants to cover the costs of processing Visa transactions.
Any program that adds a percentage at the end no longer qualifies as a cash discount program but as a surcharge.
Under the new rules, merchants are now required to disclose any surcharges they apply to Visa transactions before the customer makes a purchase.
This disclosure must be clear and conspicuous and must be displayed in a manner that is easily visible and understandable. The allowable surcharge is capped at 3% and some states have limitations or bans on this type of surcharging.
Additionally, the surcharge amount must be reasonable and must not exceed the merchant’s actual cost of processing the transaction. The new rules also prohibit merchants from surcharging debit card transactions, which are typically less expensive for merchants to process than credit card transactions.
The changes to Visa surcharge rules are part of a broader effort to increase transparency and fairness in the payment processing industry. For too long, some merchants have applied arbitrary surcharges to credit card transactions without disclosing the amount or reasoning behind the fee.This has led to confusion and frustration among consumers and has made it difficult for them to compare prices across different merchants.
By requiring merchants to disclose their surcharges upfront and limiting the amount they can charge, the new rules give consumers more information and control over their purchasing decisions.
Consumers can now make informed decisions about whether to use a credit card card for a purchase based on the total cost, including any surcharges that may apply.
The new rules also help level the playing field for merchants by preventing those who apply excessive surcharges from gaining an unfair advantage over those who do not.
This is particularly important for small businesses that may not have the same bargaining power as larger retailers when negotiating with payment processing companies.
Another important aspect of the new rules is the prohibition on surcharging debit card transactions. This is significant because debit cards are a popular payment method for many consumers and are often used for smaller purchases.
By prohibiting surcharges on these transactions, the new rules ensure that consumers are not unfairly penalized for using a debit card instead of a credit card. Visa and the other card brands will begin handing out severe fines to businesses that surcharge debit cards.
Business owners must constantly be vigilant about checking for the use of a debit card before applying any surcharge to a purchase.
The changes to Visa surcharge rules that took effect on April 15, 2023, are an important step towards increasing transparency and fairness in the payment processing industry. By requiring merchants to disclose their surcharges upfront and limiting the amount they can charge, these rules give consumers more information and control over their purchasing decisions and help level the playing field for merchants.
While the rules only apply to Visa transactions currently they will quickly be adopted by the other brands. This is a positive development that should be welcomed by all participants in the payment processing ecosystem.
In a subsequent blog post we will discuss what an approved cash discount pricing program that is legal in all 50 states looks like.