Can associations surcharge for credit card fees?

John Lehman
John Lehman
March 18, 2020

Whenever any business starts accepting credit card payments, they have to pay processing fees. Why? It's simply the cost of moving money within our financial systems. But, as online payments are quickly becoming the dominant way to pay today, you’ll have to deal with these fees sooner or later. Some association leaders manage their processing fees by essentially passing them onto their members, in the form of a surcharge.

In this blog, we’ll discuss what it means to surcharge in the context of credit cards, whether the practice is legal, and most importantly, when and if it’s smart to do it.

What exactly does surcharging mean?

When it comes to payments, the exact definition of surcharging is charging an additional amount of money with each credit card transaction to make up for payment processing costs—as much as 4 percent. For decades, surcharging was prohibited across all major credit card brands. However, in 2013, a class action lawsuit against Visa and MasterCards lead to surcharging becoming legal.

It’s worth noting that the practice of surcharging is not the same as issuing a convenience fee. They are similar in that merchants can use them to cover the costs they would pay to credit card companies. However, convenience fees are typically a flat fee and are only available if the method of payment is distinct from the business’ standard payment method. An example of this would be purchasing movie tickets online instead of buying them at the box office—the theater might charge a convenience fee for those buying their tickets online.

The legal status of surcharging

In some states, surcharging has been outlawed as an anti-consumer practice. As of this writing, Colorado, Connecticut, Kansas, Maine, Massachusetts, and Oklahoma all have laws prohibiting surcharging. Some states like California, Florida, and New York had previously outlawed surcharging, but they have all seen challenges to these laws, and more may follow suit in the future.

If your state does allow surcharging, the major credit card companies require that you follow certain procedures and rules. For instance, you must give a written notice of your desire to surcharge to all credit card brands your association accepts. Once the notice is received, you must wait 30 days before you can begin surcharging. You also cannot implement a surcharge that is greater than the cost of the processing fee.

The pros and cons of surcharging

Now then, let’s answer the issue we examined at the start of this blog—should associations surcharge?

Of course it makes sense that you’d like to get your money back from processing fees if you have the ability to do so. However, there are downsides to implementing surcharges that are important to consider.

For instance, since surcharging is essentially increasing the price of your dues for one method of payment, you may be effectively discouraging your members from paying online. Given how popular online payments are amongst consumers today, putting this hurdle up in front of your members could result in bad word of mouth, or even loss of membership.

Even so, online payments are significantly faster than traditional methods of payments, such as check payments. Your members may ultimately avoid paying you with a credit card, but your association will end up receiving dues and donations at a much slower rate. You could essentially be leaving money on the table by not accepting payments online, or by discouraging your members from using them.

However, if surcharging ultimately sounds like the best course of action for your association, there are ways to implement it in a more member-friendly manner.

For instance, you may consider building the surcharge into the cost of your membership dues instead. This way, you can still keep the enticing offer of letting members pay online, while making a flat increase to your membership by as little as 1 or 2 percent across the board. Another option is to ask your members to consider making a small donation to your association to cover the costs of processing fees.

In any case, recent trends have shown that online payments aren’t going anywhere. As time goes on, associations can expect more and more of their members will want to pay online. It’ll be up to you to decide if it’s best to accept processing fees as a cost of doing business today, or to add a surcharge to your member’s payments to off-set the costs.