Are Credit Card Processing Fees Legal?

Credit card processing fees are legal, but rules have been established to regulate them. When applying these charges, it is important to be in compliance with the terms of your processing agreement. Both Visa and MasterCard now allow businesses to charge a processing fee for some credit card transactions. This fee can be as high as 4 percent of the transaction, and it helps the merchant cover their processing costs. However, the fee cannot be charged for transactions which involve either debit cards or cards that are prepaid.

Merchants Must Exercise Caution

Merchants who charge processing fees must be careful when doing so. Charging these fees is a double edged sword because while they may cover the merchant’s transaction costs, they can also push customers away, or cause them to use cash or debit cards to buy things. As a result, a number of large businesses will not charge processing fees. Additionally, a number of U.S. states have restrictions in regards to these fees. These states are Colorado, California, Maine, Kansas, Massachusetts, Texas and New York. Merchants that choose to implement processing fees should familiarize themselves with the regulations regarding them.

Processing Fee Regulations

Both MasterCard and Visa require businesses to notify them of processing fees at least thirty days before the fees are implemented. Additionally, the acquirer must also be notified. Merchants in the United States can charge processing fees for credit card payments so long as they do not exceed the discount rate for the merchant. E-commerce companies are required to notify customers about any processing fees that they may incur, and this notification should be present on the first page which makes any reference to brands for credit cards.

Merchants that operate physical stores must notify customers of surcharges at the point of sale. Additionally, the receipt must show the final amount separately. The processing fees charged for Visa and MasterCard must be done for the same conditions or terms as any competitor who has a cost which is equal or higher and who does not charge processing fees.

For instance, if the merchant processes a payment for a credit card brand that does not allow processing fees, then the merchant must not charge processing fees for customers using Visa or MasterCard. These regulations can be complex, so it is important for merchants to go over the details with the provider.

Although processing fees are legal, they must be handled with caution. Merchants should first decide why such a fee needs to be added. Is it necessary for covering processing costs, or is the goal to get customers to use an alternative method of payment?

Many customers will not tolerate a processing fee added on top of the cost they must pay to purchase a product or service. If processing fees become common throughout the industry, there is a possibility that card companies may decide to create new fees or even drive up the existing ones. Merchants must constantly monitor their expenses for processing credit card transactions to be sure they’re not paying too much.