Tennessee permits credit card surcharges as of March 2025, placing it among the majority of states where this practice is allowed. Still, MSPs must carefully follow federal regulations, state-level consumer protection laws, and the specific rules set by card networks. 

Failing to comply with any of these requirements can lead to penalties, damaged client trust, or processor issues.

Credit card surcharging gives managed service providers (MSPs) in Tennessee a practical way to recover rising credit card processing costs. 

MSPs in Tennessee considering surcharging should take time to understand how the rules apply to them. This includes fee limits, disclosure obligations, prohibited practices, and any registration steps required by their payment processor. 

This guide breaks down Tennessee’s credit card surcharging rules, outlines practical steps for implementing surcharges responsibly, and explains how automated payment platforms can reduce errors and help MSPs stay compliant.

Disclaimer: This information is provided for general informational purposes only. It does not constitute legal advice. Always consult with a qualified legal professional to ensure your MSP meets all applicable legal and industry requirements.

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What is Credit Card Surcharging for MSPs in Tennessee?

When used carefully, credit card surcharging can ease the impact of transaction fees and help sustain profitability without making significant operational changes.

Credit card processing fees usually range between interchange fees between 2% and 4% of the transaction amount. These costs include interchange fees charged by banks, network fees from card brands like Visa and Mastercard, and the payment processor’s markup. 

These charges can quietly eat into profit margins over time for MSPs with recurring billing cycles and high transaction volumes.

Take a Tennessee MSP that processes $85,000 in monthly credit card payments with a 2.9% average processing fee. If the MSP continues to absorb the full cost, that comes out to $2,465 in fees every month or $29,580 per year.

Applying a 2.9% surcharge allows the MSP to pass the entire processing expense to clients, recovering that $29,580 annually. That reclaimed revenue could help fund upgrades, improve client support systems, or expand into new service offerings.

If the MSP prefers a shared-cost approach, they could implement a 1.5% surcharge instead. In this case, clients would cover $1,275 of the monthly fees, and the MSP would still take on $1,190 each month. 

Over a year, this approach would still reduce expenses by $15,300 while softening the impact on clients.

Regardless of the chosen rate, full transparency is non-negotiable. Clients need to be notified of surcharges before a transaction is processed, and each invoice should clearly display the added fee.

Understanding Credit Card Surcharging Laws in Tennessee

Federal law allows a maximum surcharge of 4%, and Tennessee imposes no additional state-specific cap. 

This means MSPs in Tennessee may apply surcharges up to the federal limit, provided the fee does not exceed the actual cost of processing or violate card brand restrictions. For instance, Visa currently limits surcharges to 3%.

Though no Tennessee statute directly addresses surcharges, the Tennessee Consumer Protection Act (T.C.A. § 47-18-101 et seq.) prohibits unfair or deceptive business practices. 

That means surcharges must be clearly disclosed to clients before a transaction occurs and must not mislead or surprise the client at the point of sale.

Additionally, Tennessee Senate Bill 316 / House Bill 547 (2015)—enacted as Public Chapter No. 526—requires merchant service providers to disclose processing rates and fee structures to businesses. 

While this law targets processors rather than merchants, it gives MSPs the right to understand their processing costs, which is important when calculating and justifying a surcharge.

It’s also important to understand that under the Durbin Amendment of the Dodd-Frank Act, surcharges may only be applied to credit card transactions. Tennessee MSPs cannot surcharge debit or prepaid cards, even when those cards are processed without a PIN.

To maintain compliance, surcharges must be disclosed in advance and itemized on all invoices or receipts. Transparency builds trust with clients and prevents confusion or disputes.

Violating disclosure rules or surcharging ineligible transactions (like debit cards) may lead to complaints or penalties under state law or card network policies.

For detailed questions about Tennessee surcharge compliance, consult a legal professional familiar with Tennessee’s consumer protection statutes and credit card fee regulations.

Implementing Credit Card Surcharging for Tennessee MSPs

To successfully apply credit card surcharges, Tennessee MSPs need a clear plan and proactive communication with clients. 

While surcharging can become a routine part of billing once systems are in place, poor rollout or vague messaging at the start can cause friction, rejected payments, or even chargebacks.

Failure to clearly explain surcharges before a transaction may surprise clients with the final amount. That confusion can harm the relationship, delay payments, or trigger refund requests.

Here are four essential steps for launching a transparent, compliant, and well-received surcharge policy.

Step 1: Establish a Clear Surcharge Policy and Structure

The first step is creating a well-defined surcharge structure. This should explain when and how surcharges are applied, the percentage or fee amount, and how those charges will be reflected on invoices.

Again, Tennessee does not set its own surcharge cap, but federal law limits surcharges to 4%, and Visa currently restricts the fee to 3%. 

Here are the options Tennessee MSPs may consider:

a) Fixed Percentage Surcharge

This method applies a uniform percentage to each credit card transaction, provided it does not surpass the card brand limit or the MSP’s actual cost.

Example:

An MSP applies a 3% surcharge.

• Invoice Amount: $11,000
• Surcharge: $330
• Total Payment: $11,330

A flat percentage works well for MSPs with consistent margins and stable processing rates.

b) Flat Fee Surcharge

This model adds a specific dollar amount to each credit card transaction. It’s simple to apply, but it must stay below the true cost of the transaction and the percentage cap.

Example:

A flat $40 fee is applied.

• Invoice Amount: $2,800: Total Payment: $2,840 
• Invoice Amount: $500: Flat Fee Exceeds Cap (3% = $15), so fee must be adjusted.
• Revised Payment: $515

This structure may work for MSPs with predictable invoice sizes, but is less effective when dealing with large fluctuations.

c) Tiered Surcharge Structure

This flexible approach adjusts the surcharge rate depending on the transaction amount, which can help MSPs apply fair fees across a wide range of client invoices.

Example:

• 2% surcharge for payments under $6,000
• 3% surcharge for payments $6,000 and over

For a $4,000 invoice:

• Surcharge: $80
• Total Payment: $4,080

For a $6,500 invoice:

• Surcharge: $195
• Total Payment: $6,695

Regardless of which approach is chosen, all surcharges must remain within the card network rules and never exceed the MSP’s processing cost.

Step 2: Notify Credit Card Institutions and Clients

Tennessee MSPs planning to implement a surcharge must give card networks like Visa, Mastercard, and American Express 30 days' advance notice. This can typically be done online through the processor’s portal. 

Just as important is communicating clearly with clients before any surcharges appear on an invoice. 

During onboarding or contract renewals, MSPs should explain when surcharges apply, how they’re calculated, and how clients can avoid them by using alternative payment methods like ACH or checks.

Failing to disclose surcharge details can trigger legal risk and erode trust. This could result in chargebacks and associated penalties.

Chargeback costs aren’t limited to the surcharge itself—Swipesum estimates the total cost of a chargeback averages $190 due to lost revenue, processing fees, and staff time.

To minimize this risk, MSPs should itemize all surcharges on receipts and invoices and explain the policy clearly in writing before it’s applied.

Step 3: Update Invoicing & Billing Systems

Once surcharging is in place, MSPs must ensure their billing platforms display these fees as separate, visible line items. This transparency is fundamental to maintaining trust and ensuring compliance with Tennessee’s fair billing standards.

Automated billing systems like FlexPoint help MSPs in Tennessee streamline this process. FlexPoint accurately calculates surcharges based on configured rates and inserts the fee as a distinct line item on the invoice.

Example:

• Invoice Total: $7,500
• Surcharge (2.5%): $187.50
• Total Due: $7,687.50

This format removes the guesswork and ensures clients understand how the total amount is calculated.

In addition to improving clarity, automating surcharge calculations reduces the chance of overcharging, helping MSPs avoid accidental violations of the card brand rules or exceeding the federal 4% cap. 

Later in this guide, we’ll look more closely at how FlexPoint supports compliance and billing efficiency for MSPs.

Step 4: Monitor and Review Compliance

MSPs should regularly assess their surcharge practices to stay aligned with card network policies and federal rules. If your actual processing cost drops below the current surcharge rate, you’re required to lower the fee accordingly.

Overcharging can lead to penalties, surcharge privilege suspension, or refunds to clients.

To avoid this, conduct a quarterly audit of your rates and surcharge performance. This will ensure your practice stays within the guidelines and protects you from disputes or claims of deceptive billing.

Keeping detailed records of surcharge notifications to processors, client communications, and billing adjustments is equally important. Should a complaint arise, having a documented paper trail helps demonstrate your good-faith effort to remain compliant.

The Role of FlexPoint in Streamlining Credit Card Surcharging

MSPs in Tennessee can choose how they want to handle processing costs—whether by absorbing them, sharing them with clients, or passing them on entirely. FlexPoint’s flexibility allows MSPs to protect their margins without disrupting existing client relationships.

Payment Processing Plans

FlexPoint provides two main models to help Tennessee MSPs address credit card fees efficiently:

• Interchange+ Plan
• Customer Surcharge Plan

These options cater to different business approaches, depending on whether your MSP wants to build processing costs into service fees or recover them directly from clients.

a. Interchange+ Plan

The Interchange+ Plan is ideal for MSPs that choose to absorb processing fees rather than apply surcharges. It offers transparency into actual interchange rates, which vary depending on card type, transaction method, and issuer.

For example:

• A Visa debit card transaction may carry a fee of 0.7% + $0.17
• A premium American Express card could cost up to 3.3% + $0.13
• Card-not-present transactions tend to carry higher rates due to elevated fraud risk

This plan gives MSPs insight into these fees, helping them adjust pricing models if needed and maintain clear profit expectations.

It’s a practical solution for MSPs that prefer to offer simple, surcharge-free pricing and build transaction costs into overall service rates.

Example:

A Memphis-based MSP processes $48,000 in credit card payments each month. With an average interchange rate of 2.7%, their monthly processing cost is $1,296, or $15,552 annually.

Using the Interchange+ Plan, the MSP keeps its billing structure simple for clients while retaining control over internal financial planning.

b. Customer Surcharge Plan

For Tennessee MSPs that want to avoid absorbing credit card fees, the Customer Surcharge Plan allows those costs to be passed directly to the client.

This model adds a consistent surcharge to each credit card transaction, as permitted under federal law (up to 4%) and Visa’s current limit of 3%. 

Tennessee does not set a lower cap, but the Tennessee Consumer Protection Act requires that all fees be clearly disclosed and not misleading.

Example Scenario

An MSP handles $70,000 in monthly credit card payments. With a 3% surcharge added, they recover $2,100 each month—or $25,200 annually.

The money saved can be reinvested into client support tools, infrastructure upgrades, or business development without impacting service pricing.

This approach is particularly helpful for MSPs with larger invoices or narrow margins, where absorbing fees would be unsustainable.

For example, instead of applying the full 3% surcharge, an MSP might decide to share the cost. They charge clients a 1.3% fee while covering the remaining 1.7% themselves.

If the MSP processes $55,000 per month:

• Total processing fees at 3% = $1,650
• With a 1.3% surcharge, the client covers $715, and the MSP absorbs $935
• Over a year, the MSP offsets $8,580 of processing costs

FlexPoint supports this type of partial surcharging, allowing MSPs to customize their strategy without losing sight of compliance.

The best payment model depends on an MSP’s business structure, pricing model, and client relationships.

FlexPoint simplifies billing with tools that automatically:

• Calculate surcharges based on the card type and transaction method
• Prevent surcharges on ineligible transactions, like debit cards
• Display surcharges clearly on invoices as separate line items

This ensures MSPs remain compliant with Tennessee regulations, card brand rules, and federal surcharging requirements—all while keeping clients informed and payments transparent.

How FlexPoint Enhances Surcharging Compliance and Transparency

FlexPoint streamlines the surcharging process for Tennessee MSPs, ensuring all practices stay compliant with state laws, federal limits, and card network rules.

MSPs can confidently apply credit card surcharges knowing they remain within Tennessee’s legal allowances, the federal 4% cap, and specific card brand rules like Visa’s 3% maximum.

Here’s an example of a typical invoice from a Tennessee-based MSP applying a 3% credit card surcharge:

Notes:
The credit card surcharge is listed separately to maintain full transparency and only reflects actual processing costs. For questions regarding this invoice or our surcharge policy, please contact us at [Your Contact Information].

FlexPoint’s Integration with MSP Tools for Seamless Billing

With FlexPoint, Tennessee-based MSPs can easily connect their existing platforms to streamline payment operations.

FlexPoint supports integrations with widely used tools such as QuickBooks Desktop, QuickBooks Online, Xero, ConnectWise, Autotask, HaloPSA, and SuperOps—giving MSPs the flexibility to maintain their current workflows while incorporating surcharging capabilities.

This compatibility allows MSPs to implement surcharge policies without overhauling their financial systems. 

By automating time-consuming tasks like invoicing, billing, and reconciliation, FlexPoint reduces the administrative burden often associated with credit card payments.

MSPs can confidently track fees, reconcile payments, and maintain audit-ready documentation without hours of manual input.

Additional tools such as automated reporting and custom-branded payment portals give MSPs more visibility and control over their cash flow while improving the client experience.

With cleaner processes and less time spent on backend tasks, Tennessee MSPs can shift their focus to growing their business, improving service offerings, and strengthening client relationships.

Offering Flexibility in Surcharging

Tennessee MSPs must manage surcharges accurately and flexibly. FlexPoint makes it easy to customize surcharge strategies for each client while staying aligned with Tennessee’s legal requirements and card network rules.

Client-by-client customization allows MSPs to protect their bottom line without sacrificing client trust.

For instance, a Tennessee MSP might waive surcharges for long-standing clients with high retention value while applying the standard surcharge rate for newer clients or those on smaller contracts. 

This thoughtful approach helps preserve key relationships while recovering transaction costs where appropriate.

FlexPoint’s flexible surcharging structure gives MSPs the freedom to strike the right balance between client satisfaction and financial responsibility, ensuring both compliance and continued business growth.

Conclusion: Streamlining Payments with Effective Surcharging Strategies

Tennessee MSPs can use credit card surcharging to recover the growing costs of payment processing, but doing so successfully requires thoughtful implementation.

Surcharges must be clearly communicated and shown as separate line items on every invoice to reduce the risk of client disputes or chargebacks. 

Transparency is not just good practice—it’s also necessary to comply with the Tennessee Consumer Protection Act, federal regulations, and card network limits.

With less manual work and built-in compliance, Tennessee MSPs can focus more on delivering high-quality IT services while preserving profitability through smart payment strategies.

Enhance your MSP’s bottom line and compliance with automated credit card surcharging solutions from FlexPoint. Stay within Tennessee’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 Tennessee for MSPs

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