When Visa imposes its 3% surcharge cap Saturday, the processing companies that manage merchant payments programs will have a range of reactions, from upending current approaches to sticking with line-item additions.

The card giant gave notice earlier this year that it would impose the cap in a move largely seen as an effort to rein in merchants’ panoply of payment approaches. Visa hasn’t responded to requests for comment on its new rule set to take effect April 15.

No. 2 peer Mastercard is maintaining its 4% surcharge cap, similar to Visa’s previously. “There is no change to our rules,” a spokesperson for Mastercard said, explaining that “the level of the amount a merchant can charge on credit card transactions is limited to their cost of acceptance but cannot exceed 4 percent.”

While some merchant consultants and independent sales organizations question Visa’s legal standing to implement the new rule, many are planning to comply with it, even if it means shifting to a new approach with their customers. 

CCSalesPro CEO James Shepherd, a consultant and software provider to merchants, is advising clients to shift to what’s called a dual pricing approach, if they haven’t already, to display different prices for goods and services, showing cash and credit prices. Those prices must be displayed on shelves and menus, similar to how some gas stations display pricing for the two options, he said in a YouTube post last week.

If merchants don’t adopt the dual pricing approach, and instead stick with adding line-item additions to customers’ tabs that exceed 3%, they run the risk of incurring a $5,000 fine for the first infraction, he said. And there’s chatter in the industry that Visa’s fines could jump to $1 million for flagrantly repeating violations, he said.

Even though Shepherd argues that Visa’s move to impose a cap is “overreach” that could easily be challenged in court, he warns that any merchant that balks now at complying with the new surcharge rule will lose to Visa.

“Don’t fight Visa right now – you’re not going to win,” Shepherd said in the April 6 YouTube post, noting his firm has battled Visa many times in the past on compliance issues. “I’m here to tell you that you are going to lose.”

That said, if the edict is challenged, he argues that the 2017 Supreme Court ruling in the case Expressions Hair Design v. Schneiderman, plus provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, could deal Visa a loss.

“Visa, technically, is dangerously close to violating federal law in terms of the Durbin amendment,” Shepherd said, citing the amendment to the Dodd-Frank law sponsored by Sen. Dick Durbin (D-IL).

Durbin, a long-time crusader against the dominance of Visa and Mastercard, last year sponsored legislation to try to loosen the grip that big credit card networks have on the market by pushing for more competition. The bill didn't pass last year, but a spokesperson for his office said he planned to reintroduce it this year.

In an interview last month, Network Merchants CEO Vijay Sondhi said merchants don't like paying the interchange fees to fund the card reward programs, but they understand that consumers often prefer the benefit of using cards.

Another processor middleman reacting to the Visa surcharge plan, Dominick Mangiardi, the CEO of Palatine, Illinois-based Coastal Payments, said that Visa’s new rule probably won’t change what merchants are charging. “We’re all going to keep the 4%,” he said, noting that he believes merchants will opt to try to get around the rule by referring to fees with different labels.

To the extent that Visa does try to fine merchants, Mangiardi said the thousands of dollars in sanctions will still be less than what merchants are earning from those surcharges.

Like Shepherd, Mangiardi contends Visa is treading into legally dangerous territory with its surcharge. While no one has a lawsuit prepped, lawyers, banks and other processors are weighing their options in behind-the-scenes conversations, he said, declining to provide any details. “The consensus is this ain’t going to last,” he said.

Perhaps more importantly, Mangiardi believes Visa will suffer under the new restriction as banks and merchants opt away from its cards. “Visa is hurting itself,” he said in an interview. The company is “putting a bad vibe out there.”

By Lynne Marek on April 12, 2023
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