Whether it’s a single purchase or a series of payments (e.g., a membership contract), you may be tempted to shift merchant credit card processing fees imposed on your business to your customers. After all, why should you bear the cost of the customer’s choice to use a particular payment method?
Now the good news is that almost all states permit doing this. However, there are important limitations that vary by state and by merchant account provider.
Here are some common good practices that reduce the risk of getting into trouble.
- Prominently display a sign at the point of sale that notifies the customer they’re paying the credit card fees.
- If there’s a contract, be sure there’s clear language in the agreement disclosing the shifting of fees. Ideally, you’ll also have a separate disclosure document signed and agreed to so the customer can’t complain you “hid” the information in the contract.
- Don’t make a profit on this fee-shifting tactic, i.e., charge only the amount of the actual fee. If it’s 2.5%, for example, you can’t charge the customer 2.6%. And there’s likely a cap (e.g., Visa 3% at time of publication) on what you can charge.
- Customer receipts should have the fee expense as a separate line item from the product/service being purchased.
- What if the customer uses a debit card as if it were a credit card? If you process the debit card like a credit card, you can’t charge the fee.
What if you cut corners passing along credit card fees to customers? Most states have consumer protection laws. You may end up getting sued in a class action lawsuit that seeks statutory damages (e.g., triple actual damages), attorneys fees, and court costs. Plus, you can lose your merchant accounts.
If this seems too complex, the simple solution is to raise your prices across the board regardless of the payment method in order to cover the credit card fees you’ll pay as a merchant on some transactions.
Although it’s not a legal issue, remember that most prospective buyers hate to be “nickeled and dimed” with add-on costs beyond the list price. So, from a marketing standpoint, raising prices may also make more sense than tacking on merchant credit card processing fees to the bill.
If you need help reducing your risks with the right business contracts and other legal documents, it’s probably time to schedule a phone consultation with Business Lawyer Mike Young.
