Piedmont Advantage Credit Union (PACU) cautions businesses that process debit card payments as credit card transactions to not surcharge their customers as federal law prohibits this practice.

PACU President & CEO Dion Williams said on his podcast and again on a local radio program, he learned from one of the credit union's members, who is also a Board of Director, that several of his receipts had surcharges when his debit card payments had been processed as credit card transactions. "We believe that there may be a growing number of small businesses, who are misinformed by their merchant services provider."

Surcharging is the practice of adding an additional fee or charge to a transaction when a business' customer uses a particular payment method, such as a credit card. When debit card payments are processed as credit card transactions, entering a four-digit personal identification number or PIN is bypassed and a signature may be required.

Credit card transaction surcharges are permissible. Debit card transaction surcharges are not. "The differentiator to surcharge isn't whether the business' customer entered a PIN or not. The differentiator is whether the customer used a debit card or a credit card at the point of sale," Williams said. "To put another way, the prohibition on surcharging applies to the underlying payment method, regardless of how the transaction is processed."

Why are debit card transaction surcharges impermissible? For two reasons according to Williams:

1. Surcharging on debit card purchases is impermissible under federal law. This law is called the Durbin Amendment as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This amendment requires the Federal Reserve to establish limits on debit card interchange fees. These interchange fees are paid by the business, which goes to the card company, like Visa and Mastercard, and the card issuer, like banks and credit unions. Banks and credit unions use this interchange income to cover the costs associated with fraud detection and prevention.

2. Because of the aforementioned Durbin Amendment, Visa and Mastercard prohibit surcharging customers who pay by debit card, so debit card surcharges will violate the agreement the business has with Visa and Mastercard. This violation may lead to fines or the business losing the ability to accept these cards.

What should consumers do if a business surcharges their debit card payments? Williams recommends the following:

• Consider having a conversation with the businessowner. "In my experience, small businessowners rely on their merchant services provider to set up their card-readers correctly, so bringing this prohibited surcharge to their attention would be appreciated."

• Keep your receipt and dispute the charge with the card issuer (bank or credit union). "Your financial institution will contact the card company on your behalf for reimbursement."

• Consider contacting the Attorney General's Office as this office is responsible for enforcing consumer protection laws and ensuring fair business practices.