Why don’t I just implement the program myself?
When a fee is incorrectly applied to a transaction, any additional fee charged to those consumers using a credit card is labeled a Surcharge and that is expressly forbidden by Visa, MasterCard, and the processing provider without taking very specific steps (see previous question)
The way around this process is to allow us to automate a Zero Fee Program for you which is different than the Surcharge. In the Zero Fee Program you post signage stating that all consumers will now be paying a 3.99% Service Fee, however, for those paying with cash, the fee will be waived. We will automate your equipment so that this fee is automatically added for those customers using any method of payment other than cash (essentially credit cards). While this may sound very similar to the Surcharge Program, it is distinctly different in that everyone is paying an increased fee, but those who pay with cash receive a discount, whereas with the Surcharge program, you are specifically stating that those paying with credit cards will pay more. Most importantly it is aligned with the rules of Visa and MasterCard.
Additionally, you are forbidden by Visa, MasterCard, and the Processor’s rules to profit on a credit card transaction, which could happen if you accidentally charged more than you were being charged by the processor. By utilizing the Zero Fee program, we establish proper pricing for you to ensure you stay within all stated guidelines.
Is it legal to offer a Zero Fee Program?
As Mitchell Katz, spokesman for the Federal Trade Commission, said in May of 2011: The Dodd-Frank law prohibits a payment card network such as Visa “from inhibiting the ability of anyone to provide a discount for payment by cash, checks, debit cards, or credit cards,” said Katz. “Neither surcharging, nor a zero fee program is illegal.”
Is this some kind of new program?
No, in fact it’s been around for decades in Europe and is used across the US in gas stations where a zero fee program is offered at the pump. Gas stations have been using this program in the US for over 15 years. Many national, state, and local governments including the DMV, Secretary of State, Post Offices, Schools, Courts, and the IRS implement a Service Fee.
What do I need to do to make sure I’m using this program correctly in my business?
In order to correctly implement a Zero Fee program, you don’t need to change any of your prices – you simply post signage (that we will provide) that states that all transactions now carry a 3.99% customer service charge. The proprietary technology is provided in conjunction with our hardware and processing partners.
However, any consumer who pays with cash, will have this fee waived. Your posted prices are your cash prices. Consumers who pay with a method other than cash will see a 3.99% Zero Fee Program fee listed on their receipt at the register. The additional 3.99% service charge is programmed into your terminal, hence there are no additional steps for you.
I heard that it’s illegal to charge a fee if someone uses a credit card?
Until recently, Visa and MasterCard regulations made it clear merchants could not charge more to a consumer who used a credit card over other methods of payment. As a result of a 2013 consumer who used a credit card over other methods of payment. As a result of a 2013 lawsuit against the card networks, merchants are now allowed to impose a surcharge in all but 10 states and Puerto Rico. We’ll address the surcharge in the next question below.
However, there has always been a stipulation in the Visa and MasterCard regulations that allow for a discount when paying with cash.
While this may seem like an issue of semantics, it’s simply adhering to the wording of the Visa and MasterCard regulations that allow the Zero Fee Program to be implemented.
Here’s the verbiage specific to both Visa and MasterCard Rules and Regulations: From MasterCard Rules 15 November 2016
5.11.2 Charges to Cardholders
A Merchant must not directly or indirectly require any Cardholder to pay a surcharge or any part of any Merchant discount or any contemporaneous finance charge in connection with a Transaction.
A Merchant may provide a discount to its customers for cash payments.
A Merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used, or as the Corporation has expressly permitted in writing.
From Visa Core Rules and Visa Product and Service Rules – 22 April 2017
18.104.22.168 Discount Offer – US Region and US Territories in the US Region and a US Territory, a Merchant may request or encourage a Cardholder to use a means of payment other than a Visa Card or a Visa Card of a different product type (e.g., Visa Classic Card, Visa Traditional Rewards Card, Visa Signature Card) than the Visa Card the consumer initially presents. Except where prohibited by applicable laws or regulations, the Merchant may do so by methods that include, but are not limited to:
Offering the consumer an immediate discount from the Merchant’s list, stated, or standard price, a rebate, a free or discounted product or service, or any other incentive or benefit if the consumer, who initially presents a Visa Card, uses instead another general purpose payment card or another means of payment
Communicating to consumers the reasonably estimated or actual costs incurred by the Merchant when a consumer uses a particular general purpose payment card or means of payment or the relative costs of using different general purpose payment cards or means of payment
Remember, your stated price now carries a 3.99% Service Fee, so when you someone pays with cash, they are receiving a discount off of your stated price, not an increase when they pay with credit or other means of payment.
Is this the same thing as a Surcharge? I hear that’s only allowed in certain states.
No, the Zero Fee program, while seemingly similar, is actually very different, particularly in the eyes of Visa and MasterCard. As mentioned in the preceding Q&A, the 2013 ruling against the card networks resulted in merchants now being able to implement a surcharge. The surcharge is allowed in all but 10 states (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, plus the U.S. territory of Puerto Rico).
Those states claim that a surcharge is not fair to consumers. We find it somewhat laughable that it’s not fair for consumers to pay for the cost merchants incur to provide goods and services while it’s been perfectly OK for merchants to pay for the rewards programs associated with the credit cards that consumers use.
You do realize that right? Every time you see an ad on TV, in print, or hear on the radio that talks up the benefits and rewards associated with a particular credit card, those benefits come in the form of higher Interchange rates that merchants pay to be able to accept those cards. The increase in fees is not borne by the card issuing banks or credit card processors – it’s paid for by you the merchant!
The Surcharge carries with it several stipulations:
Only credit cards may be surcharged – no debit cards
Signage must be posted for at least 30 days prior to implementing a surcharge alerting your clientele
There is a 4% maximum that can be imposed
Surcharging is only allowed in states where the program has not been excluded
With the Zero Fee program, these limitations are not in place, as you are not implementing an additional fee for accepting a credit card, you are providing a discount for those who pay with cash. This is a clear distinction, and one that Visa, MasterCard, and the courts have agreed upon:
With our Zero Fee program, all prices in your store carry a 3.99% Service Charge. The posted prices are your cash price. Those who pay with cash do not have to pay this fee. This is not a situation where those who pay with a credit card pay more.
As Mitchell Katz, spokesman for the Federal Trade Commission, said in May of 2011: The Dodd-Frank law prohibits a payment card network such as Visa “from inhibiting the ability of anyone to provide a discount for payment by cash, checks, debit cards, or credit cards,” said Katz. “Neither surcharging, nor a cash discount is illegal.”
Is this a semantics argument? We’ll let you decide, but most importantly, Visa, MasterCard, and the courts allow for this distinction.
What is the Zero Fee Program?
The Zero Fee Program is a way for you as a merchant to offset some, or all, of your current merchant service fees without increasing your overall rates. It is a method of implementing a service fee to all customers, while giving a discount to those who pay with cash. Therefore, your posted rates now become the rate for those who pay with cash. Those customers who pay with cash avoid the services fee and all others will see a line item added to their receipt. It is our proprietary technology that allows this to happen and keeps you within the guidelines of Visa, MasterCard, and processor regulations.