Credit card surcharging has become a hot-button topic for businesses nationwide. But with complex regulations and shifting legal landscapes, it can be nearly impossible to stay up to date on your own.
Stax Connect’s recent webinar, featuring CardX Founder Jonathan Razi, offered ISVs insight into this intricate challenge, providing expert guidance on surcharging compliance and a glimpse into the future of payment processing.
The session covers topics including current regulations, changes to state laws, proper signage requirements, practical implementation strategies, and clarification on areas of industry confusion. Razi, leveraging his extensive expertise in the field, offered valuable insights into the evolving regulatory landscape and best practices for establishing compliant surcharge programs.
Sessions like this are a valuable resource for ISVs navigating the intricacies of credit card surcharging, equipping them with the knowledge needed to implement effective and compliant policies.
Regulatory Landscape
A significant shift in surcharging regulations has recently swept across the United States. Razi highlighted this change, stating, “As of July 1st, 48 states now allow some form of surcharging, covering over 96% of the US population.” This dramatic increase represents a substantial opportunity for businesses, with recent legislative updates in states like Colorado, Kansas, and Utah expanding surcharging options.
Emphasizing the critical importance of understanding state-specific regulations, Razi explains how requirements can vary significantly. He pointed out notable examples: Colorado has implemented specific disclosure requirements for businesses that surcharge, while Maine mandates that merchants use dual pricing. These variations underscore the need for businesses to stay informed about the particular rules in the states where they operate.
Implementation Best Practices
Diving into crucial implementation practices, the discussion focused on clear customer communication and proper disclosure. Razi emphasized, “You need to have signage at the point of entry and at the point of sale.” This transparency is vital for maintaining customer trust and ensuring compliance with regulations.
Key compliance points outlined included:
- Surcharge must not exceed the cost of acceptance
- Maximum surcharge is 3%
- Debit cards cannot be surcharged
- Clear disclosure is essential, including itemized receipts
- Alternative payment methods must be offered to avoid the surcharge
Razi elaborated on each point, stressing their importance in a compliant surcharging program. He noted that exceeding the cost of acceptance or the 3% maximum could lead to legal issues and customer dissatisfaction. Regarding disclosure, Razi explained that transparency should extend beyond signage to include verbal communication and clear itemization on receipts. He emphasized that offering alternative payment methods is not just a compliance requirement but also a customer service best practice.
Razi also discussed the critical role of employee training. He stressed that staff should be well-versed in the surcharge policy, capable of effectively communicating it to customers, and prepared to handle any questions or concerns that may arise. This training, he noted, is essential for smooth implementation and positive customer experiences.
Technology and Integration
The discussion also went into the technological aspects of implementing a surcharge program, highlighting the critical role of seamless integration with existing payment systems. Razi explained that successful implementation requires more than just policy changes; it requires a robust technological foundation.
He emphasized the importance of accurate surcharge calculation, noting that errors could lead to compliance issues and customer dissatisfaction. “Your payment system must be capable of precisely calculating the surcharge based on the transaction amount, while ensuring it never exceeds the cost of acceptance or the 3% maximum,” Razi stated.
Razi also reiterated the importance of the presentation of surcharges on receipts and invoices. Razi stressed the need for clarity and transparency in these documents. “Customers should be able to easily identify the base amount, the surcharge, and the total,” he explained.
Razi touched on the importance of system flexibility. He noted that as regulations and business needs evolve, payment systems should be adaptable enough to accommodate changes without requiring a complete overhaul. This flexibility, he argued, is crucial for long-term success in surcharging programs.
Frequently Asked Questions
Several common points of confusion were addressed over the course of the session:
- Drip pricing laws: Razi clarified, “Drip pricing laws do not impact a compliant surcharging program because drip pricing laws specifically apply to mandatory fees or charges.” He explained that since surcharges are optional based on the payment method chosen, they are not affected by these laws.
- Sales tax handling: On this complex issue, Razi advised, “The surcharge is generally considered part of the gross receipts to the merchant, which are subject to sales tax.” He recommended applying sales tax on the total transaction amount, including the surcharge, while noting that specific situations may vary.
- Card-not-present transactions: For online or phone transactions, Razi explained, “The surcharge should be permitted both in the state where the merchant is based and in the state where the cardholder is based.” This dual-state compliance is crucial for businesses operating across multiple states.
What’s Next?
The complexity of surcharging compliance and the value of partnering with experts in the field cannot be overstated. Razi’s comprehensive overview provides a solid foundation for understanding the current surcharging landscape and implementing compliant programs.
Ray Lau, VP of Marketing at Stax remarked, “Compliance in this space is so complicated. There’s so much nuance. So appreciate your easy to understand breakdown of all of those things.”
This webinar served as an essential resource for ISVs considering or implementing surcharge programs, offering insights into regulatory compliance, best practices, and addressing industry concerns. As the landscape evolves, staying informed and partnering with experts remains crucial for successful and compliant surcharging programs.
DISCLAIMER: This information is not legal or tax advice. Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal or tax advice based on particular situations. As always, please rely on the guidance of your independent legal or tax advisors.
Watch the full webinar and get The State of Surcharging 2025 report here ⤵
