Credit card surcharging: Why compliance Is critical for auto dealerships
Surcharging, adding a small fee to credit card transactions to offset processing costs, is a smart way for automotive dealerships to reduce processing costs and protect their margins. But here’s the catch: doing it wrong can cost far more than it saves. From steep fines to lost processing privileges, non-compliance isn’t a slap on the wrist; it’s a full-body blow to your dealership’s reputation and bottom line.
That’s why proactive compliance is essential.
Whether your dealership is considering surcharging or has already implemented it, it’s time for a quick reality check. Because even small mistakes can have significant consequences, let’s walk through what compliance means, where dealers slip up, and how to protect your business while still reaping the financial benefits.
Surcharging 101: A quick recap
Surcharging allows you to recoup the cost of credit card processing by adding a small fee (typically up to 3%) to credit card purchases. It’s legal in most states and permitted by the card brands, as long as you follow their rules.
It’s imperative to understand the fine print to avoid non-compliance.
Seven common mistakes that result in non-compliant surcharging
Here are some of the most common and costly surcharging missteps:
- Accidentally charging debit cards: Even if a debit card is run as credit, you can’t apply a surcharge. The transaction type (not the button the customer or employee presses) determines eligibility.
- Missing or unclear signage: Surcharge notices are required to be displayed at the business’s entrance, at the point of sale, online, and itemized on receipts. Additionally, verbal notification is required on phone orders. Forget just one, and you’re out of compliance.
- Charging more than allowed: The surcharge must be equal to or less than your actual processing cost, and never more than 3%. Additionally, the surcharge percentage must remain consistent across all credit card brands.
- Ignoring state-specific surcharge laws: Compliance is critical for dealerships when implementing a surcharge program. Connecticut, Maine, Massachusetts, and Oklahoma prohibit surcharging (for now), while other states, such as New York and Colorado, impose additional limits or disclosure requirements.
- No cancel option at checkout: Customers should be allowed to cancel their transaction before it is completed. Additionally, if your terminal doesn’t offer customers the option to see the surcharge and cancel the transaction on their end, the entire process becomes more difficult and less transparent.
- Not registering your program: Visa requires that you notify your payment processor at least 30 days before commencing surcharging. Mastercard requires that you submit a Merchant Surcharge Disclosure Form 30-days before you start surcharging.
- Not including the surcharge amount in returns: Customers pay the surcharge percentage on their initial purchase, and compliance requires refunding the applicable surcharge on returns. Calculating the amount can be tricky when a customer is obtaining a partial refund (for example, in the Parts department) since the customer must receive a proportional amount of the surcharge.
The costs of non-compliant surcharge practices
Violating surcharge rules can lead to fines, chargebacks, and even the loss of payment processing privileges.
- Fines from card brands: Card brands are actively enforcing their surcharge policies and assessing fines starting at $1,000. Visa responds to consumer complaints about surcharging and also employs trained mystery shoppers to conduct transactions at various merchant locations, identifying violations of surcharge rules.
- Loss of payment processing privileges altogether: Card brand non-compliance fines from repeat offenders can escalate to $25,000 or more, and even result in the termination of processing rights.
- Chargebacks from confused or unhappy customers: If a card issuer determines that your surcharge program doesn’t meet card brand rules, you could lose the full purchase amount to a chargeback. Additionally, you’ll be responsible for the surcharge fee, will incur chargeback fees, and, if the original purchase included parts, your dealership will lose the inventory and the cost of the goods.
- Legal action in states with strict surcharging laws: Surcharging is not supported in Massachusetts, Connecticut, Maine, and Oklahoma (though a change is scheduled for November in Oklahoma specifically).
- Reputational damage: If customers feel blindsided, overcharged, or misled, they’ll blame you. In an age of online reviews and social media, that can be a brutal hit to your brand.
It only takes one complaint, one audit, or one overlooked sign to open the door to these issues.
Finding the right technology and support for surcharging
The best way to stay compliant is to work with a payment provider that helps dealerships comply with state laws and card network rules while maintaining CSI.
A provider with advanced surcharging technology will include automated compliance tools in the transaction process, so your team doesn’t have to stress over the details.
Here’s what to look for:
- Automatic card type detection ensures you never surcharge a debit card by mistake.
- Customer-facing terminals that display surcharge-compliant language throughout the transaction process.
- Receipts that itemize the surcharge to help you meet card brand and legal requirements without lifting a finger.
- Clear cancel options at the terminal to provide customers with complete transparency, allowing them to switch to debit or cash to complete their purchase.
- Refunds that include the surcharge protect you from refund mismatches or manual workarounds.
- Surcharge signage from your provider can help you meet signage requirements easily and take the guesswork out of compliance.
Trying to manage surcharging on your own can increase the risk of non-compliance. A good provider will offer your dealership thoughtfully designed technology to assist with compliance concerns as well as direct access to knowledgeable support staff to help your business stay compliant.
From early planning to rollout, communication, and enforcement, the right partner will help you stay compliant every step of the way.
Cut costs, maintain trust: The smart way to surcharge
Clear and transparent customer communication reduces potential dissatisfaction. Dealerships should understand that no customer likes to pay more, but by clearly offering alternative fee-free payment methods (like debit) dealerships can build trust and mitigate negative feedback.
When done right, surcharging is a winning formula to rein in rising costs. You offset credit card fees, stay transparent with your customers, and protect your dealership from unnecessary risk and fines. We’ve seen some dealerships save more than $130,000 per rooftop annually just by switching to a compliant, optimized surcharge model.
With the right partner guiding your surcharge strategy, you can cut costs without compromising on trust, transparency, or compliance. Following the smart, compliant approach outlined here will help you stay ahead while avoiding legal pitfalls and creating a better experience for your customers at the point of sale.
