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Dual Pricing, Surcharging, and Convenience Fees: A Merchant’s Guide to Compliance and Profitability

Christopher Bulin

Updated: 6 days ago



Dual Pricing. Surcharging, and convenience fees for merchants
Dual Pricing Model: Choose between a monthly credit card payment of $51.95, which includes a 4% increase, or a lower ACH payment option at $49.95.

Introduction: Excelling in Payment Programs for Merchant Achievement

Understanding programs like dual pricing, surcharging, and cash discounts is critical in the competitive payment landscape. These pricing strategies can help businesses offset processing fees and boost profitability—but only if implemented correctly. Non-compliance can lead to fines, penalties, and lost customer trust.

This guide breaks down each program, highlighting key compliance rules, state laws, and actionable examples to help merchants navigate these tools successfully.

Looking for specific advice? Check out our Compliance Resource Center.


What Is Dual Pricing (Cash Discount)?

Dual pricing, often referred to as cash discounting, offers customers two price points:

  • A higher price for credit or debit card payments.

  • A discounted price for cash or check payments.

Compliance Rules for Dual Pricing

  • Posted Price: The higher card-inclusive price must be displayed prominently.

  • Clear Disclosure: Merchants must display the credit card and discounted cash prices on signage and receipts.

  • No Hidden Fees: Discounts must be explicitly subtracted from the posted price for cash payments.


Example of Dual Pricing

A coffee shop sells a cup of coffee for $5.20 when paid with a credit card and $5.00 with cash or ACH. Both prices are displayed clearly:

  • Credit Card Price: $5.20.

  • Cash Price: $5.00.

  • Difference: The 4% increase for card payments reflects the cost of processing fees.

This example complies with card brand rules because the card-inclusive price is posted, and the cash price is presented as a transparent discount.


What Is Surcharging?

Surcharging allows merchants to add a fee to transactions paid with a credit card to offset processing costs. However, this program is heavily regulated.


Compliance Rules for Surcharging

  • Fee Limits: Surcharges cannot exceed the lesser of:

  • The merchant discount rate (MDR) for the card.

  • 3% of the transaction amount.

  • Debit and Prepaid Cards: Surcharges cannot be applied to these payment types, even if processed as credit.

  • Customer Notification:

  • Notify your acquirer 30 days before starting a surcharge program.

  • Display clear signage at the point of entry, point of sale, and on receipts.

  • State Restrictions: Surcharging is prohibited in Connecticut, Massachusetts, and Puerto Rico. Other states, such as Colorado and New York, have specific requirements.

Example of Surcharging

A boutique retailer charges $100 for an item:

  • Base Price: $100.

  • Surcharge (3%): $3.00.

  • Total Paid by Credit Card Customer: $103.00.

This example follows the rules because the surcharge is capped at 3%, debit cards are excluded, and clear signage informs customers of the fee.


What Is a Convenience Fee?

Convenience fees apply when merchants offer an alternative payment method, such as online or phone payments, instead of in-person transactions.

Compliance Rules for Convenience Fees

  • Use Cases: Fees can only be applied for specific, alternative payment methods.

  • Transparency: Customers must be informed of the fee before completing the transaction.

  • Fee Caps: Convenience fees must reflect the cost of providing the alternate payment channel.

Example of a Convenience Fee

A utility company charges a $3.00 convenience fee for online bill payments:

  • In-Person Payment: $100 (no fee).

  • Online Payment: $103 ($100 + $3 fee).

This approach complies with card brand rules because the fee applies only to the alternative payment method and is disclosed upfront.


Comparison of Dual Pricing, Surcharging, and Convenience Fees

Feature

Dual Pricing (Cash Discount)

Surcharging

Convenience Fees

Allowed States

All states

Restricted in some states

All states, with card brand rules

Use Case

Offering a discount for cash payments

Passing credit card fees to customers

Alternative payment channels (e.g., online/phone)

Price Display

Both cash and card prices must be posted

One price with a surcharge added

One price with a convenience fee added

Fee Limits

N/A

Cannot exceed 3% or MDR

Must reflect the cost of the alternative payment channel

Debit Card Fees

Not applicable

Prohibited

Allowed under specific rules

Signage Required

Yes

Yes

Yes

Customer Disclosure

At the point of sale and on receipts

At the point of entry, point of sale, and on receipts

Disclosed before transaction completion

Implementation Requirements

No prior notification is needed

Notify the acquirer 30 days before starting

Card brands must approve the fee program

Why Compliance Matters

Implementing dual pricing, surcharging, or convenience fees without understanding the rules can lead to serious consequences, including:

  • Hefty Fines: Non-compliance with card brand rules can result in penalties, starting at $1,000 per violation.

  • Loss of Merchant Account: Merchants found in violation may lose their ability to process card payments entirely.

  • Reputational Damage: Confused or frustrated customers may lose trust in your business due to unclear pricing or hidden fees.

  • Legal Implications: Certain states prohibit surcharging, and violations can result in legal challenges.

By understanding the differences between these programs and adhering to card brand and state rules, merchants can optimize their pricing strategies while avoiding unnecessary risks.


Conclusion: Stay Compliant and Maximize Profits

Dual pricing, surcharging, and convenience fees are valuable tools that can help merchants offset processing fees, improve profitability, and provide transparent pricing options to customers. However, implementing these programs requires careful adherence to compliance guidelines to avoid fines and maintain customer trust.


At Payments Guardian, we specialize in simplifying these complex programs, ensuring your business remains compliant and profitable. Whether you’re considering surcharging, dual pricing, or convenience fees, we’re here to help you every step of the way.

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