Credit Card Surcharge Rules for Law Firms 101
With credit cards and online payments now the dominant form of payment among clients, many legal professionals have made the choice to modernize their firms and allow their clients to pay for their services by card. All merchants who accept credit cards are required to pay processing fees on credit card transactions. However, some professionals have started implementing a surcharge in order to offset some of the costs of accepting credit cards in their practice.
In this post, we’ll give you a crash course in credit card surcharging, including its current status and legality in the U.S., how to properly implement a surcharge, and the rules you must follow if you do.
Let’s begin by clearly stating what we mean when we say “surcharging.” In this context, a surcharge is the practice of adding a fee on credit card transactions in order to make up for some of the payment processing fees.
It’s important to note that a surcharge is distinct and different from a convenience fee, which is a relatively older but similar term in the credit card lexicon. A convenience fee is a flat rate, for example, $1.95, that can be added to both debit and credit card transactions. It’s a cost passed to the customer to give them the option of paying in a way that’s convenient to them, hence the name.
Are credit card surcharges legal?
Though the practice of surcharging was outlawed for several decades, a class action lawsuit in 2013 permitted merchants in several U.S. states to implement surcharges in their businesses. This lawsuit started a chain reaction over the next several years with more and more states adopting a pro-surcharging stance. Proponents of surcharging have argued that anti-surcharging laws drive up prices for goods and services across the board, and in some cases may even be a violation of the First Amendment.
As of March 2021, most U.S. states allow merchants to surcharge on credit card transactions, with only Colorado, Connecticut, and Massachusetts having laws against surcharging.
Credit card surcharging rules
All merchants who decide to implement surcharging into their business are required to follow a set of rules defined by the major credit card brands. Though some of these brands have small variations of these rules between them, the general rules for implementing a surcharge is relatively universal. We’ll break down the most common of these rules below.
Notify the card brands
The major credit card brands must be notified of a merchant's intent to surcharge. This can be handled either by a letter to your account’s representative, or by filling out paperwork provided on the card brand’s website. However, with certain online payment solutions, like LawPay, their support team will handle this notification process on your behalf, saving you a step in the process.
Notify your clients
Your clients must also be made aware of your intention to surcharge. This must be written out plainly, not hidden away in a contract or in fine print. You could accomplish this by including the surcharge on your invoice, or displaying a sign on your website or office. If you’re using an online payment solution, this notice should be automatically included on your payment page.
Do not surcharge more than the cost of your processing fee
In other words, you are not allowed to implement a surcharge that charges more than the cost of your processing fees. If your fee charges an additional 3 percent on top of your transactions, you cannot implement a 4 percent surcharge. In fact, for most credit card brands, surcharge fees cannot exceed 4 percent.
Do not implement surcharges on debit card transactions
Surcharge fees are strictly limited to credit card transactions only. Even if a client wishes to run a signature debit transaction, where a debit card is essentially used as a credit transaction, you are still not allowed to implement a surcharge.
List surcharges as separate line items
When drafting an invoice and tallying up transactions, you cannot simply add the surcharge into the total cost of the service. Each surcharge that occurs must be listed separately on your invoice and labeled clearly.
Tthe reality is that in today's legal environment, accepting credit cards has become a normal cost of doing business. Your clients would much rather pay by credit card, and by accepting these payments in your firm, you’ll be getting paid more often and at a faster rate than by traditional means. Surcharging allows you to keep your transaction costst balanced while also offering your clients the payment methods they prefer.
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