With a recent ruling regarding surcharging in Kansas, merchants are now able to legally surcharge credit card transactions. This gives merchants of all types the opportunity to save a massive amount of money on their payment processing while allowing certain industries that did not take credit cards before, to give their customers the ability to pay by card without footing the bill of the transaction.
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Credit card processing fees can be one of the largest monthly expenses for a business. With the increased use of high rate rewards/skymile cards by consumers, the cost of processing credit cards continues to rise. This combined with the economic effects of the pandemic have driven merchants to adopt surcharging across the country where legal. Merchants who have implemented credit card surcharging have seen very little push back from their client base, especially since the pandemic started. This has ultimately led to a massive cost savings for businesses in order to invest money in other parts of their business. With the decision in Kansas, there are only three remaining states that prohibit surcharging.
What is credit card surcharging?
Credit card surcharging is when a merchant charges an additional fee to a consumer for the use of a credit card that is not greater than their cost of acceptance. Merchants are not able to surcharge debit cards and ultimately all merchants in states that allow surcharging are required to follow strict Card brand rules that dictate exactly how a merchant is able to compliantly surcharge.
Why is surcharging now legal in the state of Kansas?
The law prohibiting surcharging was introduced in Kansas in 1986. K.S.A. 16a-2-403 states the following, “16a-2-403. Prohibiting surcharge on credit or debit cards. No seller or lessor in any sales or lease transaction or any credit or debit card issuer may impose a surcharge on a card holder who elects to use a credit or debit card in lieu of payment by cash, check or similar means. A surcharge is any additional amount imposed at the time of the sales or lease transaction by the merchant, seller or lessor that increases the charge to the buyer or lessee for the privilege of using a credit or debit card.” This was ultimately challenged in the case of CardX vs. Schmidt where the plaintiff argued that the law went against a merchant’s first amendment right regarding how they are able to communicate price differences. This argument had legal precedent due to similar laws being overturned in California, New York, and Florida. Federal Judge John W. Broomes settled in the plaintiffs favor saying, “If allowed to pass on the cost of credit card acceptance, such businesses are able to offer their goods and services to the significant portion of the consumer base that prefers or needs to pay with credit. In these industries and across the economy, credit card surcharges expand consumer choice”, issuing his decision on February 2nd 2021.
How will surcharging affect business and consumers in Kansas?
There are several ways this ruling will affect consumers and businesses. Although at first glance, consumers may react as though there is no benefit, just an additional fee, it will ultimately lead to more transparent pricing. Typically merchants have had to calculate the cost of credit card processing into the cost of their goods and services. This puts the consumer who wishes to use cash in a situation where they are having to pay a higher price for a service they did not use. With that, credit card processing fees continue to go up as more and more consumers are using high rate rewards cards when paying with credit cards, making it harder for merchants to keep up with price increases associated with their rising costs. By allowing merchants to surcharge credit card transactions in a compliant manner, the merchant will be able to more accurately price their products and services. Merchants who did not accept credit cards due to it’s high cost and their slim margins (B2B wholesale, professional services, construction services) will now be able to offer consumers more payment flexibility while keeping their costs as low as possible.
Although some industries may be slow to adopt, surcharging is here to stay and can be a key tool in lowering costs. Merchants in Kansas should consider if surcharging is the right choice for them. It is extremely important to make sure that when implementing a surcharging program that you work with a reputable service provider as their are many who sell “semi-compliant” solutions that may claim to offer higher costs saving, but in the end may get your business in hot water.
Solvit’s 100% compliant surcharging program can be utilized in our Smart Terminal, Point of Sale System, eCommerce platform, and invoicing service, giving your business the functionality you need with the cost savings of a compliant surcharging program.