State of the Industry Report September 2024

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CMSPI – IAC State of the Industry Report

Connecticut and Massachusetts. While the bans on surcharging have declined, states are frequently placing limits and requirements on a merchant’s ability to surcharge. The card brand rules are superseded by the states. Finally, federal regulators like the Federal Trade Commission (FTC) have taken an interest in fees, including surcharges. The FTC has expressed an interest in placing surcharging restrictions on top of the state laws and card brand rules, which, if enacted, would likely supersede both. The Durbin Amendment provides additional protections for merchant price signaling, prohibiting network rules that restrict a merchant’s right to set the minimum amount for credit card purchases – not to exceed $10 – and for businesses to have the right to offer discounts for cash, checks, debit card, and credit card payments. 269 270 For discounts on debit and credit cards, the law requires protection for merchants where the discount does not differentiate between issuers or payment card network. While this provides a protected avenue to discount between payment method types, it does not afford protections for discounts on individual network-branded cards or card types (i.e., rewards vs. non-rewards cards). AMERICAN EXPRESS – 2018 SUPREME COURT RULING American Express has a longstanding policy prohibiting surcharging. In 2018, the Supreme Court ruled that American Express’s anti-surcharging rules did not violate antitrust laws. This case was an extension of a 2010 antitrust lawsuit by the Department of Justice (DOJ) against American Express, Visa, and Mastercard. Visa and Mastercard settled the lawsuit by accepting the DOJ’s consent decree, agreeing to “remove their rules prohibiting merchants from product-level discounting of credit and debit cards.” 271 American Express decided to fight the case instead of settling and as a result of the Supreme Court’s decision, American Express’s anti-surcharging rules remain in effect in the United States. 272 Conclusion The cost methodology implemented by the Fed to cap debit card interchange fees has not been altered in more than 10 years despite evidence of reduced underlying ACS costs for issuers. Additionally, Durbin’s co-badging and routing requirements provide opportunities for merchants to leverage competition, but inhibitors need to be removed for full value to be delivered. Credit cards remain mostly untouched in the U.S., which likely explains why the U.S. has such a high cost of card payments compared to other countries (see Section 1.2).

Section 5.2.3 – Discounting and Surcharging The ability to surcharge in the United States is complex and evolving. Differing – and often changing – card brand rules, state laws and potential federal regulation make surcharging in the U.S. challenging. Since 2013, Visa and Mastercard have allowed merchants to surcharge credit card holders with four stipulations: 267 Right to surcharge: Merchants may surcharge the full average discount fee incurred, as determined by the prior month or last 12 months. 1

Brand or product-level surcharge: Merchants may surcharge brand-wide or employ a more nuanced strategy and impose surcharge on one or more product groups. Customer disclosure: Merchants must disclose to consumers that the surcharge does not exceed the merchant’s cost of acceptance, and disclose the amount of the surcharge both before it is incurred and on a receipt. Level-playing field restrictions: If another more expensive network restricts surcharging, the merchant may not surcharge Visa and Mastercard without also surcharging transactions on that competitor network.

While Visa and Mastercard allow surcharging with these stipulations, American Express has maintained its prohibition on the practice. As a result, a merchant who accepts American Express, could not comply with Visa and Mastercard’s level- playing field restrictions to surcharging. Since 2013, there have been two key changes to card network rules on surcharging. Firstly, in April 2023, Visa lowered its maximum surcharge from 4% to 3%. 268 Second, in March 2024, as part of the proposed settlement in the MDL 1720 class action lawsuit (see Glossary), changes to the global network surcharging rules were put forward. If these changes are approved, U.S. merchants would have the ability to bypass the level- playing field restrictions for surcharges of up to 1%. This implies that merchants could apply surcharges to Visa and/or Mastercard at either the brand- or product-level, but only up to a limit of 1%. However, any surcharges exceeding 1% would still need to adhere to the level-playing field restrictions. In 2013 ten states prohibited surcharging, and today only two states maintain a prohibition:

269 https://www.cardfellow.com/blog/cash-discount-eliminate-processing-fees/ 270 https://www.cardfellow.com/blog/minimum-charge-credit-card-purchase/ 271 https://casetext.com/case/barrys-cut-rate-stores-inc-v-visa-inc 272 https://www.nytimes.com/2018/06/25/us/politics/supreme-court-american-express-fees.html

267 https://www.paymentcardsettlement.com/Content/Documents/Final%20Approval.pdf 268 https://paymentcloudinc.com/blog/visa-surcharge-rules/#:~:text=Per%20a%20recent%20Visa%20notice,- from%204%25%20to%203%25.