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Can Local Governments Pass on Credit Card Fees to Customers?


March 19, 2014  by  Bob Meinig
Category:  Accounting

Can Local Governments Pass on Credit Card Fees to Customers?

 

Update: The settlement agreement discussed in this blog post was reversed in June 2016 by the Second Circuit Court of Appeals, but the credit card companies who changed their policies regarding surcharges to comply with the settlement agreement have chosen to continue allowing surcharges while the litigation continues. (Updated January 2017.)

As a result of a 2013 settlement agreement in a federal district court anti-trust case in New York State, yes, they can. Many local governments have long allowed people to pay fees and charges by credit card, and no Washington State law prohibits them from passing on to customers the fees that credit card companies charge for the use of their services (“interchange fees”). However, the major credit card companies (Visa and MasterCard) would not allow it for certain transactions. But, as a result of this settlement, those credit card companies now allow “merchants,” including local governments, to impose that surcharge on these transactions, as long as certain requirements are followed.

Those requirements involve:

  • Notice to Visa or MasterCard and their “acquirer” (the bank or other financial institution that processes the credit card payments) 30 days prior to imposing the surcharge;
  • Disclosure to customers that the surcharge is being imposed; and
  • Limitations on the rate of the surcharge.

Surcharging is prohibited on debit and prepaid cards, and the surcharge must be the same for all credit card transactions of that brand, regardless of issuer. For merchants, including local governments, that accept credit cards from other brands of credit payment, including American Express, Discover, and PayPal, surcharging practices are subject to a competitive “level playing field” limitation.

Here are links to more information on this settlement and on the ability of local governments to impose this surcharge:

Whether local governments should impose this surcharge on credit card transactions is a policy decision for each local government to make.


Photo Courtesy of PT Money (ptmoney.com)

MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Bob Meinig

Bob wrote extensively on the state Open Public Meetings Act, municipal incorporation and annexation, and a wide variety of other legal topics. He is now retired.

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