1. Sr. Director Credit & Collections
Rolling out a credit card surcharge program: hot topics and best practices
Brad Boe
Director of Credit
Mike Bevilacqua
Sr. Director Credit & Collections
Ron Clifford, Esq.
Scott E. Blakeley, Esq.

2. Increase in the Use of Credit Cards in the B2B Space
Card Driver Use
Card Network Perspective
More card use – B2B space
Marketing efforts to customers
Customer’s Perspective
Card as extended terms
Improved cash flow
Convenience
Cardholder’s Perspective
Points and miles
Reimbursement
Source: Wall Street Journal
National Small Business Association

3. Making Credit Cards a Price Competitive Payment Channel
The Vendor’s Teams’ Evaluation of Surcharge Rollout:
Critical Supplier or One of Many
Implementation Costs
Decreased DSO
Total spend vs. profit/loss of surcharge
The Customer’s Perspective
The Cardholder’s Perspective
Supplier Choices with Cards
Pass Card Costs to Customer
Surcharging
Convenience Fees
Absorb Card Costs
No Surcharge: Lowering the Interchange Fee
Cash Discount for Non-Card Use

4. Making Credit Cards a Price Competitive Payment Channel
Supplier
payments

5. Card Surcharge Flow Chart
Card Company Rule Compliance
Rule Changes
PCI
Legal Compliance
Card Holder Privacy Rights
Anti-Surcharge Legislation
Vendor’s Best Practices
Internal Card Policy
Vendor’s Card Agreement w/ Customer, including T&C’s
Fraud
Chargeback
PCI Compliance

6. The Six Card Network Rules for Surcharging
Disclosure to networks and cardholders
Calculating the surcharge
Level playing field
Stratification
Debit cards
International transactions

7. State No Surcharge Laws
California
Colorado
Connecticut
Florida
Kansas
Maine
Massachusetts
Oklahoma
New York
Texas
Uniform Theme: Protect consumers within their states from retailers adding a charge to cards, therefore acting as a form of tax on those consumers choosing cards to pay for their goods or services.

8. Litigation Challenges to No Surcharge Laws8
California
Texas
Florida
New York
October 2013:
Southern District of New York finds no-surcharge law unconstitutional
September 2015:
U.S. Court of Appeals for the 2nd Circuit reverses decision of district court, making the ban enforceable
March 2017:
U.S. Supreme Court rules law impermissibly regulates commercial free speech and remands
September 2014:
District court upholds the no-surcharge statute
November 2015:
U.S. Court of Appeals for the 11th Circuit vacates the decision of the District Court
September 2016:
Supreme Court takes no action on the petition
February 2015:
District court upholds the constitutionality of no-surcharge law
March 2016:
U.S. Court of Appeals for the 5th Circuit affirms decision of district court, keeping the ban enforceable
April 2017:
U.S. Supreme Court remands to following ruling with New York law.
March 2015:
District court rules the surcharge ban is unconstitutional
January 2018:
U.S. Court of Appeals for the Ninth Circuit affirms, finding California’s no-surcharge law violates commercial free speech
December 2017:
2nd Circuit certifies to N.Y. Court of Appeals to answer specific question on no-surcharge law
May 2017:
5th Circuit remands to district court to conform ruling with New York court.

9. U.S Supreme Court Upholds Anti-Steering Provisions in American Express Case
The federal government, along with several state Attorney Generals brought a case against American Express for its anti-steering provisions for being anticompetitive.
Anti-steering provisions in contracts between American Express and merchants prohibit merchants from steering customers to cards with lower interchange fees through incentives or other means.
The Supreme Court held that the anti-steering provisions were not anticompetitive to cardholders and actually allowed American Express to offer more benefits to its cardholders.

10. Visa and MasterCard Near a Settlement in Antitrust Litigation
A class action initially commenced in 2005 by merchants against Visa and MasterCard over interchange fees, tying and bundling, and anti-steering provisions
By July 17, 2018, a settlement agreement between the parties should be reached.
Some terms that may be included:
Visa, MasterCard, and the card issuing banks will pay the merchants $6.5 billion.
Though details on interchange fees have yet to be reported, they may be lowered even if just temporarily
Merchants who do not take the settlement will still be able to commence an action against Visa and MasterCard regarding these fees.

11. Canadian Credit Card Settlement
In 2014, after discussions with the federal government, Visa and MasterCard agreed to voluntarily reduce their merchant fees for 5 years
In 2017, the class merchants and Visa and MasterCard agreed to a settlement, under which each Visa and MasterCard will modify its no- surcharge rules and each pay C$19.5 million (US$14.7 million)
The rules will come into effect no later than 18 months after court approval of the settlement
Merchants should expect a transition period following court approval of the settlements:
Card Companies will publish literature that officially establishes the new card network rules
Card Companies will distribute new payment terminals to merchants with labels notifying customers of the merchant’s right to surcharge

12. Credit Card Acceptance Policy Review
Give a background for adopting the policy
Define the policy requirements in a policy statement
Define the reasons for establishing a policy
Define the scope of the policy
Address the Visa and MasterCard rules modifications

13. Credit Card Acceptance Policy Should Define Policies and Procedures
Acceptable payment cards
Who is the policy applicable to
Are surcharges imposed at the brand level or product level
Define banner exceptions
Define prohibited card activities, i.e. cash advances
Define debit card prohibitions
How are payment card fees allocated to your various operating companies, i.e. on a transactional basis or monthly basis
How do you handle refunds
How do you handle chargebacks
How are discounts handled
Reconciliations
Define your rate structure
Maximum surcharge cap adjustments
Methods to accept credit cards
Under what terms of sale will you accept credit cards and are your operating companies given discretionary autonomy in this matter
Level I, II, III processing
Card not present processing
How to ensure the lowest possible transaction rate
Security of cardholder information
PCI compliance policy
Choice of law/venue enforceability

14. The Surcharge Rollout
This may be complex and should be preceded by a Credit Card Surcharge Project Matrix with the following:
Define and document customer treatment
Establish/declare universal surcharge, variable surcharge and maximum surcharge rates
Establish/declare surcharge applicability
Implement infrastructure and technology capabilities
Develop and publish disclosures
Operationalize credit card surcharge administration and application

15. The Surcharge Rollout It’s a Negotiation!
Vendors should negotiate with credit card companies for exceptions and concessions
The larger a vendor’s credit card sales volume, the more leverage that vendor has in negotiations

16. Lowering the Interchange Fee
Depending on the detail of the information that is passed along with the card transaction, it may qualify for lower interchange rates. Below is the information required to lower interchange fees categorized into three levels:
Level 1: Customer location, zip code; merchant name; transaction amount; date;
Level 2: Level 1 information and customer tax ID number; business and corporate cards must include sales tax number; purchasing cards must include sales tax and customer code; customer minority code and customer state code; and
Level 3: Level 1 and Level 2 information; corporate cards must include line item data; item product code and/or item name

17. Best Practices for a Vendor’s Credit Card Payment Program
Internal Credit Card Policy
In-house procedures for accepting cards, surcharging cards, storing cardholder information and mitigating risk of chargeback and fraud
Ensures company-wide compliance with anti-surcharge statutes and credit card company rules
Vendor’s Credit Card Agreement
Key language:
“Applicant” should be defined as “the customer buying from [vendor] or any person, natural or legal, who uses their credit card to make payments on behalf of the customer
In this way, agreement is applicable to both personal cards and corporate cards
Governing Law and Venue provision:
Vendor may also consider venue provision

18. Reducing Processor Fees
How can your processor assist your company with implementing level III credit card processing – level of effort, cost, IT resources, testing, etc.?
Does your processor have a recurring engine for setting up recurring credit card payments automatically with flexible billing intervals with either a fixed or variable amount owing and can such transactions be processed at level III?
Does your processor support straight through processing (STP)?

19. Reducing Processor Fees
Does your processor support VPP and does your processor charge for participating in the VPP program by implementing the rates through a custom interchange table?
Does your processor have the ability to eliminate a gateway thereby reducing costs and increasing authorization approval rates?
Does your processor have a card updater that automatically updates cardholder cards that are about to expire?
Can your processor process all credit card transactions at level III? The reason being is that some processors will drop transactions that are not level III eligible (rewards cards, etc.). Ineligible level III transactions will be dropped by some processors to shed level III data and must be resubmitted involving another layer of coding complexity for your EIPP site. Level III data would have to be omitted from consumer cards which would be a function of your EIPP provider through additional coding with your processor.

20. The Logistics of Accepting Credit Cards
In the B2B space, a card-not-present transaction over the phone or internet is the most likely means of processing credit cards. Virtual Terminals can be established wherein the customer’s credit card information is manually entered by the vendor before being sent through a payment gateway for processing by a processor. Does your processor have a hosted pay page, e.g. its own virtual terminal outside of your system, for offloading credit card transactions away from your source systems in a card not present environment?

21. PCI Policy and Considerations
Purpose
Audience and Scope
Statement of Policy
What is PCI?
PCI and Card Settlement Opportunities
PCI Breaches
PCI Overview
What are your current challenges with PCI?
Assessment Approach
Credit Card Handling Summary
Electronic Data Handling
Physical Data Handling
Enforcement and Exceptions