In the past, Colorado was one of only a handful of states that banned surcharges on credit card transactions. In 2021, Governor Jared Polis lifted this ban and signed a new law which permits surcharges and details how they should be implemented. The law officially takes effect July 1 of this year. Knowing what to expect will help both business owners and customers adapt more smoothly.
What is the Purpose of a Credit Card Surcharge?
Accepting credit cards costs business owners money. In addition to paying a merchant services provider, there are numerous fees tacked on for things like security compliance, charge backs, and high risk services.
Adding a surcharge to each credit card purchase helps to offset costs for the business owner and allows them to keep accepting cards as a convenient form of payment.
What are the Colorado Guidelines for Surcharging?
Most states do not have regulations regarding surcharging, so it is considered permissible merely by default. Colorado is unique in that it has a specific law regarding the matter, along with a set of guidelines for its implementation:
Charges are Capped
Surcharges on credit cards will be capped at either 2% of the overall sale amount, or at the amount paid to the merchant services provider. Business owners may choose which method they want to use.
Any Additional Amount is Considered a Surcharge
In other states, card brand rules apply for whether or not something constitutes a surcharge. Under Colorado’s law, any additional amount applied to a credit card transaction is considered a surcharge. It does not distinguish between various fees, such as convenience or service fees. All count as a surcharge and are subject to the same rules and regulations.
Only Credit Cards Can Carry a Surcharge
Under Colorado’s new law, business owners may add a surcharge to credit cards only. Surcharges may not be added to transactions using debit cards, checks, gift cards, or cash. This is somewhat stricter than other states, where debit cards may still be subject to convenience and service fees.
Full Disclosure of Surcharging is Required
The Colorado law will mandate all business owners to inform customers about surcharges. This is to be stated using wording provided in the constitution. Merchants must also include the surcharge as a line item on receipts.
Does it Hurt a Business to Enact a Surcharge?
Many businesses may worry about customer backlash if they start surcharging credit cards. This is a valid concern, especially for your established patrons. No one likes having to pay more, after all, and it may seem unfair to customers who are not aware of the fees associated with accepting credit cards.
If you have concerns about a surcharge, consider a cash discount program. This is another way that businesses recoup losses from payment processing fees. It involves an overall price hike of around 4 percent, and anyone paying with cash is then given a 4 percent discount. This can have a less punitive feel than a surcharge. No one is charged more for using a credit card, they are simply ineligible for a discount.
Discounts are typically capped at 5%. The discount must be posted via clear signage and available to all customers paying with cash or check.
Reduce Your Payment Processing Fees
Unfortunately, fees are a necessary part of being able to accept credit card payments. However, many business owners do not realize that they may be overpaying for certain fees. A merchant services broker is a payment processing specialist that can help you look for ways to reduce or even eliminate certain fees. Contact Summit Payments to find out how you can start saving today.