The State of Michigan permits credit card surcharging, which is a way to offset the rising costs of credit card processing fees. By transferring these fees to clients, MSPs can reduce operating costs and maintain healthier profit margins.
Although this strategy allows MSPs to reduce financial strain, it comes with compliance obligations.
MSPs must follow both Michigan’s state regulations and federal laws. In addition, major card networks like Visa and MasterCard have their own guidelines for surcharging practices, which must also be observed.
This guide outlines Michigan's credit card surcharging laws, presents practical steps for MSPs to begin surcharging, and explains how modern payment automation solutions simplify compliance and operational efficiency.
Disclaimer: This content is for informational purposes only and does not constitute legal advice. MSPs should conduct due diligence and consult with a legal professional to ensure full compliance with Michigan’s surcharging regulations.
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What is Credit Card Surcharging for MSPs in Michigan?
When an MSP processes a credit card payment, they incur fees ranging from 2% to 4% of the transaction amount. These processing costs usually include interchange fees, network assessments, and payment processor markups.
The fees may seem insignificant for small payments but quickly accumulate for large invoices and recurring payments, impacting the MSP's bottom line.
For example, consider a Michigan MSP with $120,000 in monthly credit card payments. If the processing fee is 3%, the MSP pays approximately $3,600 monthly. Over the year, this cost adds up to $43,200.
The MSP can offset these fees by introducing a credit card surcharge.
If the MSP applies a 3% surcharge, it would save $43,200 in annual credit card processing fees. These cost savings could be used to expand service offerings or strengthen financial reserves.
However, some MSPs may prefer a more balanced approach to avoid straining client relationships.
Instead of passing on the full amount, they might apply a smaller 1.5% surcharge, meaning clients cover $1,800 monthly while the MSP absorbs the rest.
This hybrid approach still returns an extra $21,600 per year to the company’s cash flow, offering financial relief while maintaining client goodwill.
Credit card surcharging is a flexible option, but MSPs should prioritize clarity and compliance.
Michigan’s surcharging laws and guidelines from major card networks like Visa and Mastercard require businesses to disclose surcharge fees to clients and ensure those fees don’t exceed the actual cost of processing.
The following sections will explore the legal considerations for surcharging in Michigan and how MSPs can set up compliant surcharging policies.
Understanding Credit Card Surcharging Laws in Michigan
As of December 2024, no state laws in Michigan prohibit surcharges on credit card payments. This means MSPs in Michigan can legally apply surcharges to recover credit card processing fees.
However, surcharging comes with specific rules MSPs must follow to remain compliant.
For example, Debit and Prepaid cards cannot be surcharged, even if processed as credit payments. This rule is outlined in the Durbin Amendment of the Dodd-Frank Act, which applies to all U.S. states, including Michigan.
Transparency is a fundamental part of compliance for Michigan MSPs. Businesses that apply surcharges must inform clients of these fees before completing a transaction.
To comply with transparency rules, MSPs should ensure all billing materials — such as invoices, receipts, and payment portals — clearly display surcharge fees.
According to the Michigan Department of Attorney General, “Online sellers have to disclose that a surcharge will be imposed on the website page where credit cards are first mentioned.”
The amount or percentage of the surcharge should be itemized as a separate charge, making it clear how it affects the total payment.
With unambiguous communication and proper billing procedures, MSPs in Michigan can maintain client trust while using surcharges to recover credit card processing costs.
If you’re unsure about Michigan’s surcharging regulations or how to implement them for your MSP, consult a legal professional. They can offer personalized guidance on structuring surcharge policies and avoiding regulatory missteps.
Implementing Credit Card Surcharging for Michigan MSPs
Research indicates that customer reactions to surcharges can be mixed.
For example, a survey from PYMNTS found that over 75% of customers would be less likely to use a credit card if a surcharge were applied, while 40% said they would look for an alternative service provider.
For Michigan MSPs, surcharges must be implemented thoughtfully to balance profitability with client relationships.
Below is a step-by-step guide to effectively implementing credit card surcharging for Michigan MSPs.
Step 1: Establish a Clear Surcharge Policy and Structure
The first step is to create a clear surcharging policy that defines the percentage rate when it applies and how clients will be informed. To prevent misunderstandings, this policy should be documented and included in client service agreements and each invoice.
MSPs may choose from different surcharge structures based on transaction size, payment method, or client type.
Most MSPs opt for a fixed percentage surcharge, but alternatives like a tiered surcharge system or flat fees are also possible.
Examples of Surcharge Structures
1. Fixed Percentage Surcharge:
A flat percentage (e.g., 3%) is applied to every credit card transaction.
Example: A Michigan MSP invoices a client for $10,000 in services.
The surcharge is 3% of $10,000, totaling $300.
In this case, the final invoice amount is $10,300.
2. Tiered Surcharge System:
A variable surcharge rate is applied based on the transaction amount.
For example, 2% is charged on transactions below $5,000, and 3% is charged on transactions above $5,000.
Example:
- A 2% surcharge adds $90 to a $4,500 invoice, making the total bill $4,590.
- A 3% surcharge adds $210 to a $7,000 invoice for $7,210.
Step 2: Notify Credit Card Networks and Clients
Michigan MSPs must inform their payment networks and clients before charging a surcharge. Failure to do so could result in payment disputes, chargebacks, or penalties from card networks.
Visa and Mastercard require at least 30 days' advance notice before starting a surcharging program. MSPs must submit a notification to both Visa and their payment processor, typically through an online form.
Visa’s guidelines state:
“U.S. merchants must first notify Visa and their acquirer of their intent to surcharge at least 30 days before implementing surcharging. Merchants can submit a notification form to Visa.”
Once card networks are notified, the next step is to inform clients. Clients should be given clear explanations about the purpose of the surcharge and how it works.
Make sure it is clear to clients that this is not a strategy to earn your business a profit. Instead, explain it is a way to cover card processing fees.
Effective client communication can prevent billing disputes.
Here’s an example:
A client receives a bill for $6,500 and notices an additional $195 surcharge (3%).
If this fee was not previously disclosed, the client might file a chargeback, believing the surcharge was an error.
In addition to losing the payment, the MSP may also face penalties from card networks. A Swipesum report highlights that a business's average chargeback cost is $190 per dispute.
To prevent disputes, Michigan MSPs should:
- Send notification emails or add a statement to invoices announcing upcoming surcharge changes.
- Add a surcharge explanation on every invoice detailing the fee and how it’s calculated.
- Update service agreements to reflect the new surcharge policy.
By informing clients, MSPs can reduce chargebacks, avoid disputes, and build trust.
Step 3: Update Invoicing & Billing Systems
Once the surcharge policy is in place, MSPs must update their billing and invoicing systems to itemize surcharges, showing clients exactly what they are paying for.
Invoice Example:
- Service Fee: $12,000
- Credit Card Surcharge (3%): $360
- Total: $12,360
This level of clarity helps clients understand how surcharges affect the total bill. It also prevents disputes and supports chargeback defense, as clients can see the surcharge on their invoices.
Platforms like FlexPoint automate this process by automatically calculating and itemizing surcharges.
With FlexPoint, MSPs can create fully transparent invoices that comply with federal and network regulations.
FlexPoint’s automated billing eliminates manual calculations, reducing the chance of human error.
To prepare your billing system, follow these steps:
- Use payment processing software with automated surcharge features.
- Test invoices to ensure surcharges are displayed as separate line items.
- Provide staff training to ensure employees understand surcharge policies and can explain them to clients.
Step 4: Monitor and Review Compliance
Surcharging laws aren’t static — they can change based on decisions from Visa, Mastercard, or regulatory bodies like the Consumer Financial Protection Bureau (CFPB). In addition, the state government can introduce legislation regarding credit card surcharges.
Michigan MSPs should regularly review their surcharging practices to stay compliant.
Key compliance considerations include:
- Adhering to surcharge caps: Visa allows a maximum surcharge of 3%, while Mastercard caps it at 4%. However, MSPs cannot charge more than the actual cost of processing. For example, if your processor charges 2.75%, your surcharge cannot exceed 2.75%.
- Documenting changes to surcharge policies: If Visa or Mastercard updates their rules, MSPs should update their service agreements and notify clients.
- Monitoring client feedback: Monitor client complaints or questions about surcharges. Early feedback can highlight potential compliance issues.
Example:
Suppose Visa lowers the maximum surcharge to 2.5%.
Michigan MSPs charging 3% must promptly modify their invoices and service agreements.
Failure to act could result in Visa penalties and client disputes.
With a proactive and strategic approach, Michigan MSPs can keep their surcharge policies up-to-date and fully compliant.
FlexPoint's automation capabilities make this process easier — modifications to surcharge caps can be made automatically, lowering the likelihood of errors.
The Role of FlexPoint in Streamlining Credit Card Surcharging for Michigan MSPs
MSPs may pay thousands annually in credit card processing fees without a well-defined strategy to cut these costs.
FlexPoint addresses this issue with payment automation tools specifically designed for MSPs.
Payment Processing Plans
MSPs know their clients best, and depending on what they deem mutually beneficial for this relationship, FlexPoint offers different payment processing plans.
These flexible payment plans make FlexPoint a powerful choice for Michigan MSPs, whether they absorb, split, or pass on processing fees.
1. Interchange+ Plan
The Interchange+ Plan provides a transparent pricing model. Fees are based on the interchange rate associated with each credit card type.
Since every card (Visa, Mastercard, Amex) has its own interchange fee, costs can vary depending on the card used for payment.
Example:
- Discover Card payments typically have lower interchange rates, reducing fees for MSPs.
- Premium cards like Amex and high-reward credit cards have higher interchange fees, increasing transaction processing costs.
The Interchange+ Plan is ideal for MSPs who prefer to absorb processing fees rather than pass them on to clients.
While this approach protects client relationships, it may not be financially sustainable for MSPs handling large transaction volumes.
2. Customer Surcharge Plan
The Customer Surcharge Plan allows MSPs to shift processing costs to clients by applying a flat percentage surcharge on all credit card payments.
This approach eliminates processing fees from the MSP's overhead, preserving cash flow and profit margins.
This plan offers simplicity and predictability, as a predetermined surcharge percentage is applied to credit card transactions.
It's a helpful option for MSPs who want to maintain profitability while giving clients a transparent fee structure.
Example:
- A Michigan MSP invoices a client for $8,000 in services.
- With a 3% surcharge, an additional $240 is added to the total, bringing the final amount to $8,240.
FlexPoint also offers the option to split processing fees with clients. This balanced system allows MSPs to absorb some fees while still passing some costs to clients, which can help maintain positive client relationships.
How FlexPoint Enhances Surcharging Compliance and Transparency
Failure to adequately disclose fees or miscalculations can lead to disputes, chargebacks, and penalties from card networks.
FlexPoint automates this process, ensuring compliance with federal regulations, Michigan state guidelines, and Visa and Mastercard card network policies.
Here’s how FlexPoint enhances compliance and transparency for surcharges:
- Accurate Surcharge Calculation: FlexPoint ensures surcharge rates are accurate and do not exceed regulatory limits (e.g., Visa's 3% cap or Mastercard’s 4% cap).
- Clear and Precise Invoicing: FlexPoint automatically itemizes surcharges on client invoices, showing them as a separate line item with the exact amount or percentage.
- Full Disclosure: Clients receive clear invoices with a breakdown of service charges, surcharges, and the total amount due.
Example of an Invoice Using FlexPoint
Payment Terms
Payment is due within 30 days of the invoice date. The surcharge complies with federal regulations (under the 4% limit), Michigan state laws, and card brand guidelines.
Notes
Thank you for your business! If you have any questions about this invoice, please contact us at [Your Contact Information].
FlexPoint’s Integration with MSP Tools for Efficient Billing
FlexPoint integrates with the tools many MSPs already use, such as:
These integrations allow Michigan MSPs to automate three key financial processes:
- Invoicing: Generate and send clear, transparent invoices with surcharge details automatically included.
- Billing: Automate payment collection and charge clients accurately based on service fees, surcharges, and taxes.
- Reconciliation: Reconcile payments in real-time, ensuring financial records are always up to date.
Consider an MSP that uses FlexPoint and QuickBooks Online. When the MSP processes a client payment, the surcharge is automatically calculated, applied, and itemized on the invoice. QuickBooks Online immediately reflects this entry.
This real-time connectivity ensures accuracy and allows MSPs to focus on service delivery instead of manual financial management.
Each transaction is logged accurately, eliminating the need for manual data entry, which is a common source of payment errors and delays.
FlexPoint also offers branded client payment portals. These products give MSPs greater visibility into their cash flow and enhance client payment experiences.
Offering Flexibility in Surcharging
FlexPoint’s automated payment system empowers Michigan MSPs to manage surcharges precisely and flexibly. MSPs can adopt a more strategic approach by tailoring surcharging rules for each client.
For instance, loyal, long-term clients might be exempt from surcharges, while new or one-time clients could be subject to them. This approach helps MSPs balance financial health and client satisfaction.
FlexPoint also enables MSPs to set automatic surcharge rules based on specific payment criteria.
These rules ensure card brand guidelines are met on every transaction, helping MSPs avoid errors or non-compliance issues.
For example, if a client pays with a Visa, FlexPoint ensures the surcharge does not exceed 3%, which is Visa's surcharging limit.
The system automatically applies the correct limit for Mastercard payments based on the transaction's specifics. This automation ensures MSPs remain compliant without having to monitor each payment manually.
Clients also benefit from personalized payment portals, which can update payment information anytime.
For instance, if clients typically pay with Mastercard but switch to Visa to reduce surcharge fees, they can update their payment method directly in the portal.
This flexibility eliminates delays, reduces administrative burden, and promotes smoother payment experiences.
Conclusion: Streamlining Payments with Effective Surcharging Strategies
Transparency, regulatory compliance, and transparent client communication minimize disputes and protect client relationships for Michigan MSPs implementing credit card surcharging.
Surcharge fees must be displayed as a separate line item on invoices. MSPs must also notify clients about surcharge fees in advance to prevent surprises during billing.
Compliance with federal, state, and card network regulations is essential, as Visa, Mastercard, and other payment networks limit the amount that can be charged.
FlexPoint simplifies this process for MSPs.
MSPs can confidently implement surcharging with tools like automated invoicing, custom surcharge rules, and branded client payment portals.
FlexPoint’s MSP-focused platform makes it easy to manage payments while enhancing client trust.
The automated platform ensures full compliance with surcharge limits, federal regulations, and card brand rules.
By streamlining billing, payments, and reconciliation, FlexPoint saves MSPs time and reduces the risk of manual errors.
Enhance your MSP’s bottom line and compliance with automated credit card surcharging solutions from FlexPoint. Stay within Michigan’s regulations and simplify your MSP payment processes using FlexPoint today.
Schedule a demo to see how FlexPoint can transform your financial operations and maximize profitability.
Additional FAQs: Credit Card Surcharging in Michigan for MSPs
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