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FAQ / Knowledge Base -- Save Money on Credit Card Processing Charges -- Credit Card Processing Fees, Refunds and Customer Returns

Credit Card Processing Fees, Refunds and Customer Returns

Credit card processing fees are not refunded when a customer returns an item that they've purchased. Not surprisingly, this is a point of contention that many business owners have with merchant accounts and credit card processors. Credit card processing charges are not returned when a transaction is reversed. In fact, many merchant account providers will charge additional fees such as a return fee to reverse a transaction.

Money lost on credit card returns is an issue that many business people haven't considered, but when they do, it contributes to the frustration that sometimes accompanies merchant processing. If this article has enlightened you to this new source of lost revenue, we apologize for being the bearer of bad news, but rest assured we'll explain how you can minimize or even eliminate lost revenue due to unreturned processing fees.

First, let's take a look at why processing fees aren't reversed when a credit card transaction is returned by a customer. Perhaps the most obvious reason, and a speculative one at that, is because banks don't like to lose money. Returning processing fees and losing money doesn't quite fit the business model that most banks utilize.

On a more serious note, the Interchange system that the processing system uses to operate isn't really set up to run in reverse. There are a lot of issues and legalities that would need to be dealt with in order to refund processing charges. The task of creating a system to effectively and accurately refund credit card processing fees is a gigantic logistical undertaking that the card originators and acquiring banks aren't eager to tackle.

Luckily, you take matters into your own hands and minimize or even eliminate lost revenue due to credit card processing fees not being refunded when a customer returns a purchase. The solution is to charge your customers a return fee or a restocking fee. You can call this fee whatever works best for your business, but there a few very important suggestions that you should follow to adhere to Card Association guidelines and to avoid losing business.

Clearly post your return fee policy in a prominent place, preferably near the point of sale or checkout.
The Card Associations require all policies involving credit card sales and returns to be clearly posted. If you have the capability, you should consider printing your return fee policy directly on sales receipts.

A return fee should be a percentage of the original purchase amount.
To offset processing fees as accurately as possible, a return fee should be expressed as a percentage of the original purchase amount. We don't recommend that you try to profit from a return fee, so it's best to figure out what percentage to charge by adding your qualified discount rate with your non-qualified surcharge and rounding to the nearest whole number. Check your merchant account statement or contact if you're not sure what your qualified and non-qualified discount rates are. The number you arrive at should be about 4% if you have a card-present merchant account and 5% for a card-not-present merchant account.

A return fee must be charged for all types of payment or not at all.
To comply with your merchant service agreement, you can't discriminate against customers who choose to pay with a credit card. If you impose a return fee on customers who pay with a credit card, you must impose the same fee on customer using any other form of payment that you accept such as cash and checks.

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On May 20, 2009 Liz said:

I asked this recently but did not see a reply, so I apologize for the duplicate question. Can businesses charge the customer for the merchant fee?

On May 20, 2009 Ben said:

Hi Liz,

You can adjust your pricing model in order to alleviate the burden of processing expenses. You can't charge customers directly for processing fees, but there is a way to essentially accomplish what amounts to the same thing.

These two articles explain everything pretty well.
Passing Credit Card Processing Charges to Customers
Convenience Fees

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