Can Associations Apply a Surcharge on Credit Card Payments?

John Lehman
January 23, 2024

Surcharging has become a common strategy for businesses to offset the costs associated with credit card transactions. To take advantage of this useful tool, it is essential to learn how to navigate the legal landscape and ensure compliance with relevant regulations.

In this blog post, we will delve into what surcharging entails and explore the dos and don'ts that associations should be aware of.

Understanding Surcharging

Surcharging is the act of imposing an additional fee on members who choose to pay with a credit card. Organizations sometimes leverage surcharging to cover the processing fees charged by credit card companies.

It’s worth noting that the practice of applying a surcharge on credit card payments is not the same as issuing a convenience fee. They are similar in that merchants can use them to cover the costs they would pay to credit card companies.

However, convenience fees are typically a flat fee and are only available if the method of payment is distinct from the business’ standard payment method. An example would be purchasing movie tickets online instead of buying them at the box office. The theater might charge a convenience fee for those buying their tickets online.

Compliance with State Laws

Surcharging is regulated at the state level and the legality of the practice varies. Some states explicitly allow surcharging, while others prohibit it. As of March 2024, surcharging is effectively banned as an anti-consumer practice in four states (Connecticut, Maine, Massachusetts, and New York) and Puerto Rico. In addition, some states that permit surcharging may impose restrictions on the amount of the surcharge. As a rule of thumb, organizations cannot use surcharging as a means to profit. In general, card brand rules limit surcharges to 3 percent in the U.S.

All in all, it is crucial to be aware of and comply with the specific laws in the states where your association operates to avoid penalties.

Compliance With Card Network Rules

If your state does allow surcharging, the major credit card companies require that you follow certain procedures and rules. Before implementing surcharging, associations must familiarize themselves with the rules set by major card networks such as Visa, MasterCard, and American Express.

For instance, you must give written notice of your desire to surcharge to all credit card brands your association accepts. (If you have an AffiniPay account, this requirement will be handled on your behalf.)

Each network may also have its own set of guidelines regarding surcharging. Violating these rules can result in penalties or even termination of the merchant account.

Additionally, surcharge fees are strictly limited to credit card transactions only. Even if a member wishes to process a signature debit transaction, where a debit card is processed as a credit transaction, surcharging is not allowed. Surcharges are also not applicable to prepaid cards.

Clear Disclosure

Transparency is key when it comes to surcharging. Organizations must clearly communicate the surcharge to members before they make a purchase. This can be done through signage if you are in-person, or language on the checkout page before payment is submitted.

Leverage Surcharging Without the Hassle

In conclusion, surcharging can be a practical solution for businesses looking to manage the costs associated with credit card transactions.

However, it is crucial for your association to navigate the legalities surrounding surcharging, including card network rules and state regulations, to implement surcharging in a transparent manner.

Whether or not you add surcharging to your billing is a business decision that must be carefully contemplated, weighing the pros and cons. If you would like to discuss if it’s the right decision for your association, contact AffiniPay and we will review your account with you.

Payment processing cost is often considered a necessary expense in today's business landscape. Nevertheless, offering your members a more user-friendly payment alternative can enhance the promptness and frequency of receiving payments for your services. By implementing surcharging the right way, you can take advantage of the effectiveness and prevalence of online payment solutions while mitigating some of the costs linked to credit card transactions. Contact AffiniPay if you wish to discuss implementing surcharge or have any questions about online payments for your association.