Do you have any cash in your wallet right now?
Probably not, or maybe it’s just a few dollar bills. And if you do, let’s go get coffee then come back to this legal mumbo jumbo.
See, even lawyers can make jokes instead of it always being jokes ON us!
Now what sounds easier, traipsing off to find an ATM that won’t charge you a fee or pulling out your trusty credit card? Ordered anything online recently? Bet you used a credit card!
Credit cards have dominated the marketplace for their convenience for consumer and merchant. For example, you may have a website that allows your clients to purchase photographs online or an app that allows you to use a smart device as a credit card machine instead of requiring clients to go get cash or requiring you to make a trip to the bank to deposit checks. Although the use of credit cards can be quite convenient, what are the costs to the merchant of using credit cards over other means of payment?
Credit Card Fees
Credit card companies have fees to utilize their services that fall on the merchant. There is a fee for each transaction that is a certain percentage of the sale. There is also a flat rate fee per transaction. According to CNN Money the average of these fees equals 2-3% of the total sale. Then in addition, there may be a variety of other fees, such as a setup fees and annual fees associated with their merchant account.
Figuring out the fees that will apply to your business can be daunting process. The fees can add up quickly, especially for smaller merchants who don’t have the ability to negotiate their fees like larger merchants. Per transaction fees are often reduced by the credit card company based on the average number of transactions completed per month, thus a store like Target will likely have smaller fees than a photographer.
Challenging Credit Card Fees
A group of merchants banded together and challenged Visa and MasterCard in a federal law suit alleging that the credit card companies were “fixing” the fees charged to merchants. In 2013, the merchants won the right to require a minimum purchase for a Visa/MasterCard purchase and the right to place a surcharge on a Visa/MasterCard credit card transaction. There are restrictions on how much a merchant can surcharge, including the requirement that it only cover the fees the merchant will incur and that it can be no more than 4% of the transaction.
These surcharges are different than the convenience fees that were already allowed in instances where that method of payment was not the “usual” method used for purchasing that product. For example, a convenience fee may be applied when you use a credit card to pay a college tuition bill online or over the phone versus mailing in a check.
Deciding to use Offsetting Measures
Although merchants now have the right to use these types of measures to offset credit card fees, many merchants will choose not do so. Some reasons for this decision include:
- Fear that any extra fee will upset or even scare away customers from making purchases. This might cause your clients to purchase less than they might have otherwise.
- The belief that just having the right to surcharge will keep the credit card companies from hiking their merchant fees to unreasonable levels.
- Many businesses already work their credit card fees into the overall price of their products, and thus charging an additional fee would be “double dipping”. In the reverse, if you implement a surcharge you could in turn reduce the price of your products. This could give you a competitive edge against other photographers depending on your market.
If you choose to implement a surcharge there are several steps you must take prior to doing so.
- First, you are required to register with your credit card company 30 days prior to implementing such measures. This can be done here for Visa and here for MasterCard.
- You will also likely be required to notify your bank prior to implementing the fees. Each bank will have their own specific requirements for this notification.
- Decide which types of card you will surcharge. For example, you can surcharge all Visa cards or just the rewards points cards, which often have a higher percentage charged to the merchant.
Additional Things to Consider
As always, you must be aware of the specific laws of your jurisdiction. In as many as ten states, the types of offsetting measures are restricted with legislation pending in additional states. In addition, it is important to remember that the lawsuit only included Visa and MasterCard credit cards, and did not include other credit cards such as American Express or debit cards.
- Payment Plan Contract Bundle (includes credit card authorization form)
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