“Visa is disappointed by the decision of the U.S. Court of Appeals for the Second Circuit,” a Visa spokesperson says in a statement. “We are reviewing the specifics of the ruling and will decide our next steps. Visa remains committed to working with retailers to grow their businesses and provide them with efficient and valuable payment options.”
Though MasterCard Inc. and Visa Inc. have their own rules for surcharging, generally the amounts are capped to actual acceptance costs, or 4%, whichever is lower. The rules also require consumer disclosure. Debit card surcharges are not permitted.
According to a person familiar with surcharging practices, no changes are anticipated, at least for Visa’s rules.
Others, too, expect that surcharging will remain in place.
“If anything, this upset is more likely to increase exposure to the existing petitions for the Supreme Court to hear this case, and eventually decide that surcharging should be legal everywhere,” says David Leppek, president of Transactions Services, an Omaha, Neb.-based payments provider.
The company offers a surcharging program for merchants in the 42 states that allow it, Leppek says. Certain merchant types are good candidates for it, including those that don’t accept payment cards because of costs and those that deal primarily with business-to-business transactions. Other prime candidates include providers of highly emotional purchases, those frustrated by payment-acceptance costs, and merchants selling high average-ticket items that consumers are more likely to use credit cards than debit cards to pay for.
Leppek views the appeals court’s veto of the settlement as based on procedural issues pertaining to class-action lawsuits. “As a result, the card brands changed their rules and have no motivation to now change them back,” Leppek says.
At Berwyn, Pa.-based JetPay Corp., which late last year debuted its Limitless program that enables merchants to offer discounts to consumers who pay with cash, Peter Davidson, vice chairman, expects a similar outcome.
“Given the reasons why the settlement was overturned—that it was essentially being too lenient towards the card networks for the merchants in the later class—it should have no long-term impact on JetPay’s Limitless program,” Davidson says via an email. “We believe any future final settlement will incorporate the allowance for different prices for cards versus other payment forms.”
Others, however, are less than enthused about surcharging in general.
“The new ruling by the appeals court is a significant victory for merchants,” says Alex Nouri, president of EFT Direct, an Ann Arbor, Mich.-based payments provider. “I applaud the reversal. The 2012 settlement is effectively null and void. While it’s usually good to have a choice, surcharging should not have been one of the facets of the lawsuit because it would hurt merchants more than not. Consumers frown on having to pay for extras, let alone an added fee for using their credit card.
Nouri says he would be surprised at a discontinuation of surcharging, but he argues nonetheless that the networks should ban the practice “because it never made practical sense and is being used by some merchants to increase their bottom line instead of counting it as a business expense.”
Nouri says the 4% cap often results in some unscrupulous independent sales organizations and agents setting the discount rate automatically at 4% and also charging “hefty” terminal-lease fees, “thereby guaranteeing themselves a huge windfall on the back of both merchants and consumers.”
Both Visa and MasterCard have online forms for consumers to complete if they suspect a merchant violation of the surcharging rules.
“There are limits on what we can do about proactive compliance with over 9 million merchants in the U.S. alone,” says a MasterCard spokesperson. “However one thing ensures an investigation: It’s receiving a compliant form from a cardholder who believes that he or she has been wrongly surcharged.”