Surcharge on credit / debit cards - inconsistency

[UCBaking]

I've been excited about using the surcharge feature and I'm implemented it across my three locations. There is one inconsistency and injustice that Square should address: The automatic surcharge is apparently NOT applied to transactions where debit cards are used, even though Square processes all debit card transactions as credit transactions. This policy is not made clear in the documentation:

• Surcharges only apply to credit card transactions. ACH, debit card transactions, tips, offline payments, and split tender payments can’t have surcharges applied. 

This is not exactly clear (and certainly not fair) because in reality there are no debit card transactions in Square; ALL card payments are treated/processed as credit transactions. But when a debit card is used, the surcharge is not applied even as the merchant is still charged the same fee for swiping, dipping, or tapping as a credit card. This is contrary to the spirit of the feature, which is to offset credit card fees for the merchant. 

It would be amazing if Square could address this. 

[TheRealChipA]

@UCBaking 

This restriction on debit card surcharging is NOT Square's restriction.  It is the card networks' restriction.  Even if Square did prompt for PINs and run it as a true debit, we would still not be able to surcharge the customers.  Honestly, the networks have us all in a bind here and they know it.

Currently the only way I know of to get around this is to look at customer cards (which means we process them ourselves) and to deny payments by debit card.  Of course, this is a PR disaster waiting to happen.  We could as Square for a new feature that would prohibit debit card payments, but again the same PR disaster waiting to happen.

Regardless, whether Square processes a debit card as a debit or credit transaction, we are charged the same fees.  But the networks (Visa, etc) are holding Square's feet to the fire here and if they do allow surcharges for debit cards no matter how the transaction is processed, then they will revoke Square's contracts and we all will lose our card processing capabilities.

Bottom line: you and every business owner you know need to petition your lawmakers to fix this strange loophole in their surcharging policies.  That is the ONLY way this is going to be fixed.

[TheRealChipA]

@UCBaking To be very clear, the networks do not care how the transaction is processed.  They ONLY care that the card is a debit card.  It's a stupid restriction, but it is a very real restriction that is not of Square's making.

[UCBaking]

The distinction that is muddied is between debit CARD surcharges and debit TRANSACTION surcharges. 

When a debit card is treated as a credit card by the processor (as Square does), the fact that it is nominally a "debit card" is meaningless because the transaction is processed the same as all other (credit) card transactions. We get charged the same fee by Square and (I would assume) Square pays Visa/MC the same fees.

In theory, it makes sense to not charge a fee on a (real) debit transaction because those transactions are treated by the banks and processors as cash and are much lower risk for all parties. But Square doesn't allow real debit transactions...

So are you sure that the networks (Visa/MC) do not allow surcharges on "debit" cards if they are being processed as credit cards? Or do the networks only restrict surcharges on debit transactions? 

[TheRealChipA]

I am VERY sure.  The policies ONLY make the distinction between debit and credit CARDS, not TRANSACTIONS.  This means that it is irrelevant how the transaction is processed since Visa, for example, doesn't allow surcharges on debit CARDS.  Honestly, even if they are processed as "credit" transactions, the funds still come from a checking account and this is what the card networks are trying to prohibit.  "Credit" transactions on debit cards is a misnomer since the money is not put into a credit balance that can be spread out over time.  These should never have been called credit transactions.  They are really "PIN not present" transactions.  They are still ultimately debits to checking accounts.

Do a web search of "are surcharges allowed on debit card transactions that are processed without the PIN."  You'll find many articles from many sources to confirm what I'm saying.  And you can even go to the Visa or Mastercard sites and do a search.  They are very clear about not allowing surcharges on debit card transactions PERIOD.

Basically there are a few things at play here.

• Federal Law: Federal regulations explicitly forbid adding fees to debit card payments.

• Card Network Rules: Major card networks, such as Visa and Mastercard, have rules that also prohibit surcharging on debit card transactions, regardless of how the transaction is processed (with or without a PIN).

• Some states might allow the distinction between PIN and PINless transactions on debit cards.  But unfortunately, they would only apply to transactions processed in their states and since they violate federal laws, they are meaningless.

[TheRealChipA]

@UCBaking I should add one more thing. The restrictions only apply businesses that take cards as part of routine business. Governments can always charge surcharges. That’s because cards are not routine payment options for them. It’s complicated.