Checkout Fees Not Allowed on Debit Cards

In 2012, Visa and MasterCard signed an agreement resolving a class action suit brought by US merchants. As part of the settlement, merchants were allowed to begin surcharging credit card transactions. The surcharge – or “checkout fee” – went into effect in January 2013. There have been several lawsuits filed in the subsequent years by merchants and other groups trying to neutralize or change different aspects of the settlement. In California this week, a federal appeals court settled a case brought in 2015 by declaring that the state can’t prevent businesses from charging additional fees to customers who use credit cards.

Effective January 13, 2018 surcharges on credit and debit card transactions in the European Union will be prohibited. This is great news for consumers who were paying as much as 20 percent in fees for some purchases. In Australia, merchants can only charge a fee to cover the actual costs associated with processing payments, around one percent of the transaction.

In the United States, there was confusion regarding the surcharge when it became effective and some of that confusion lingers today. Here are facts you can share with coworkers and cardholders:

1.   The surcharge (“Checkout Fee”) only applies to credit cards; IT DOES NOT APPLY TO DEBIT CARDS (Advantage Checkcards for example) OR PREPAID CARDS (gift cards for example). Cardholders who use a debit card or prepaid card at checkout and choose the “Credit” button in order to make a “signature” purchase SHOULD NOT BE CHARGED THE CHECKOUT FEE. If a store attempts to add a surcharge on a purchase made with an Advantage Checkcard, cardholders should inform the clerk they are using a Debit Card and not a Credit Card and the surcharge is not allowed.

2.   The Checkout Fee may not exceed four percent (4%) of the transaction amount and merchants must disclose the actual dollar amount of the surcharge on the receipt. For credit card returns, a prorated share of the surcharge should be refunded as well.

3.   Merchants who implement the Checkout Fee are required to post a notice at the point of store entry and at the point sale. Online merchants must post a notice in the first web page that references credit card brands. The disclosure must include the amount of the surcharge and the fact that the fee is being charged by the merchant, not the card issuer.

4.   Some merchants will charge a “convenience fee” to the cardholder for using a card for their purchase, for example, taking online payments for rent rather than accepting checks only.

5.   Merchants are allowed to require minimum purchases for credit card purchases — up to $10.

6.   Merchant are allowed to offer discounts for cash, checks, or other non-credit card means of payment.

7.   There are nine states with laws restricting surcharging; if you suspect a violation in these states, contact the state attorney general’s office: Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

8.   Cardholders may report merchants charging excessive Checkout fees or surcharging debit or prepaid card transactions or setting minimum purchase requirements not allowed by going to this website and filling out the “Report a Merchant Violation” form: www.visa.com/checkoutfees.

For FAQs and information about credit cards and debit cards visit www.knowyourcard.org.

If you have any questions, contact Karen Bos-Carey with The Advantage Network at (605) 335-2937.