Merchants have faced a dilemma when it comes to accepting credit cards—up to three percent (3%) of the funds received when a customer pays with a credit card are applied to transaction fees, also known as “swipe fees” which are payable to a combination of the credit card company, various global, regional and local credit card processors, and financial institutions. Until recently, merchants were barred from passing along such fees directly to their credit card-using customers due to the standard agreements governing the relationship between the major credit card companies and the average merchant . Violation of these prohibitions resulted in high fees and/or the refusal of credit card companies to allow merchants to continue to accept credit cards.
In January of 2013, a preliminary settlement was reached in a class action lawsuit filed by various merchants and merchant groups against Visa and MasterCard. In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 2013 U.S. Dist. LEXIS 179340 (E.D. N.Y. Dec. 13, 2013) (the “Interchange Fee Settlement”). The basis for the suit and resulting Interchange Fee Settlement was the amount and policies surrounding the “swipe fees” assessed against merchants when their customers use credit cards. Pursuant to the Interchange Fee Settlement, Visa and MasterCard agreed that they would permit merchants to assess surcharges on those customers using credit cards, in certain situations. The preliminary settlement became final on December 13, 2013. Also in late December, 2013, American Express reached a preliminary settlement (which has yet to be approved by any judge) of two class action lawsuits that have been pending for several years. See American Express Anti-Steering Rules Antitrust Litigation, 1:11-md-2221, U.S. District Court, Eastern District of New York (Brooklyn) and Marcus Corp. (MCS) v. American Express Co., 1:04-cv-5432, U.S. District Court, Southern District of New York (Manhattan) (collectively, the “AmEx Settlements”). The AmEx Settlements provide for similar terms to the Interchange Fee Settlement as it relates to surcharging.
Although surcharging is now currently legal in Indiana, certain states have enacted laws prohibiting the assessment of credit card surcharges, despite the Interchange Fee and AmEx Settlements. The following analysis sets forth the requirements for surcharging customers physically present at a merchant in Indiana only. Merchants should be aware that any merchant either: (i) remotely charging (i.e., card is not physically present at the time of the transaction) a credit card issued to a resident of a different state, or (ii) charging a credit card pursuant to a contract or transaction entered into another state, it is the law of the state of the customer’s residence and/or the state where the contract or transaction was entered into whose surcharging laws will control, not the law of the state where the merchant resides or the credit card is charged.
Visa and MasterCard’s requirements for merchants that wish to assess surcharges can be loosely categorized as follows:
1. Notice to MasterCard and Visa.
Both Visa and MasterCard require merchants who wish to assess surcharges to notify them of such intent, in writing and via specific forms, at least thirty (30) days in advance of the inception of such surcharging.
2. Surcharge Caps.
Both Visa and MasterCard have set specific caps on the amount of the surcharge that can be passed on to the credit card using customer. These caps correlate to the amount of the fees assessed by Visa or MasterCard on the particular merchant, which can be determined either based upon the category of merchant or by the type of credit card, as set forth in documents made available on Visa and MasterCard’s websites.
3. Notice of Surcharge.
Merchants choosing to surcharge customers also “must provide clear disclosure to the merchant's customers of the merchant's surcharging practices at the point of interaction which shall include the amount of the surcharge and the dollar amount of the surcharge on the transaction receipt provided by the merchant to its customers.”  Visa even provides draft merchant disclosure notices, which are available on its website. 
4. Other Requirements for Merchants that Accept Other Competing Credit Cards Besides Visa and MasterCard.
Finally, the Interchange Fee and AmEx Settlements also expressly state that, where merchants accept other credit cards besides Visa, MasterCard and American Express (e.g., Discover, Diner's Club, etc.), such merchants cannot assess a surcharge as to Visa, MasterCard and/or American Express usage unless a comparable surcharge is assessed for all other credit cards. Although the other competing credit cards were not a part of the Interchange Fee or AmEx Settlements, it appears that all credit card companies now allow surcharging along similar lines to that which has been permitted by Visa, MasterCard and American Express.
Although the Interchange Fee and AmEx Settlements have resulted in the major credit card brands’ allowance of surcharging, state laws with respect to surcharging diverge on the issue. Indiana considered legislation in 2013 barring surcharging that is similar to that which has been enacted in other states, and it is certainly possible that this issue will be arise again in either 2014 or future legislative sessions. Merchants who decide to begin surcharging credit cards should pay close attention to the status of any such future legislation
This article is designed to provide a basic understanding of concepts of the law. The law, however, is very much subject to change and to interpretation by different courts. Additionally, the applicable law varies from situation to situation. Accordingly, this article should be viewed as educational in nature, and not to be considered as either legal advice or a substitute for competent advice from a qualified attorney. Rubin & Levin, P.C., and the author of this material encourage that you seek independent legal counsel to address any questions pertaining to particular issues or situations which you may encounter.