Can Associations Apply a Surcharge on Credit Card Payments?

John Lehman
March 17, 2021

Whenever any business starts accepting credit card payments, they have to pay processing fees. Why? It's simply the cost of moving money within our financial systems.

But as online payments are quickly becoming the dominant way to pay today, you’ll have to deal with these fees sooner or later. Some association leaders manage their processing fees by essentially passing them onto their members, in the form of a surcharge.

In this blog, we’ll discuss what it means to add a surcharge on credit card payments, whether the practice is legal, and most importantly, when and if it’s smart to do it.

What Exactly Does Surcharging Mean?

When it comes to payments, the exact definition of surcharging is charging an additional amount of money with each credit card transaction to make up for payment processing costs—as much as 4 percent.

For decades, surcharging was prohibited across all major credit card brands. However, in 2013, a class action lawsuit against Visa and MasterCards led to surcharging becoming legal.

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 of this 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.

The Legal Status of Surcharging

In some states, surcharging has been outlawed as an anti-consumer practice. As of this writing, Colorado, Connecticut, Massachusetts, and Puerto Rico all have laws prohibiting surcharging.

Some states like California, Florida, Kansas, and New York had previously outlawed surcharging, but they have all seen challenges to these laws, and more may follow suit in the future.

If your state does allow surcharging, the major credit card companies require that you follow certain procedures and rules.

Rules for Applying a Surcharge

First, you are required provide a written notice of your desire to surcharge to all credit card brands your association accepts. Once the notice is received, you must wait 30 days before you can begin surcharging. In addition, you must also notify members of your intention to add a surcharge to credit card transactions.

Further, you cannot implement a surcharge that is greater than the cost of the processing fee. Essentially, you can only surcharge to recoup the losses sustained from processing fees.

Finally, a surcharge must be listed as a separate line item. You cannot simply roll the cost of the surcharge into the transaction total.

Note: these are general requirements. Please refer to your state's website for the Office of the Attorney General for any state-specific guidelines.

The Pros and Cons of Surcharging

Now then, let’s answer the issue we examined at the start of this blog: should associations apply a surcharge on credit card payments?

Of course it makes sense that you’d like to get your money back from processing fees if you have the ability to do so. However, there are potential downsides to implementing surcharges that are important to consider.

For example, since surcharging is essentially increasing the price of your dues for one method of payment, you may be effectively discouraging your members from paying online. Given how popular online payments are amongst consumers today, putting this hurdle up in front of your members could impact the member experience.

However, if adding a surcharge on credit card payments ultimately sounds like the best course of action for your association, there are ways to implement this practice in a more member-friendly manner.

For instance, you may consider building the surcharge into the cost of your membership dues instead. This way, you can still keep the enticing offer of letting members pay online, while making a flat increase to your membership by as little as 1 or 2 percent across the board. Another option is to ask your members to consider making a small donation to your association to cover the costs of processing fees.

Recent trends have shown that online payments aren’t going anywhere. As time goes on, associations can expect more and more of their members will want to pay online. It’ll be up to you to decide if it’s best to accept processing fees as a cost of doing business today, or to add a surcharge to your member’s payments to offset the costs.

If you’re interested in learning more about AffiniPay for Association’s surcharging functionality, please reach out to our Support Team.


Originally published March 18, 2020