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Many dealers today utilize some kind of surcharge programs to offset credit card payment fees. However, paying close attention to rules and regulations surrounding surcharges is crucial, as explained by Julie Douglas, CEO and Founder of dealership payment processing firm Dealer Pay.
Driving the news: “If dealers are willy nilly adding fees here and there to this customer, and not this one, there are fees and risks to doing that,” Douglas told Daily Dealer Live hosts Sam D’Arc and Uli de’ Martino last week. “Even though [surcharges are] exciting because you get to maximize profits, the biggest piece of it is making sure you're compliant.”
For context:
Douglas says that around 7 out of 10 deals that land on her desk come from a dealership with an interest in some sort of surcharge program.
She works with over hundreds of dealerships nationally that have some kind of surcharge program in place.
While she says dealers processed a ratio of around 25% debit card payments to 75% credit cards prior to surcharging, retailers today have a ratio closer to 50-50.
Managing compliance concerns with surcharges can be difficult and complex, given that regulations can vary state to state and can also depend on how a retailer files taxes.
“There's lots of organizations, financial institutions even, DMSs even, they don't have all the boxes checked to make sure dealers are 100% compliant,” Douglas notes.
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Dealers can mitigate surcharge compliance risks in a few key ways:
Surcharges need to be applied uniformly across a dealer’s customer base to avoid additional fees and risks associated with regulatory policies.
Dealerships can also offer alternative payment methods to credit cards, such as debit cards, checks, or cash, if customers want to avoid surcharges.
Maintaining optimal transparency with customers and employees alike is important, and surcharge compliance regulations typically require adequate signage on paperwork and around each department.
Bottom line: Douglas says she does advocate for dealerships using surcharge programs, so long as they’re 100% certain their service provider is maintaining compliance, knows the business, and is clued into any potential policy or market changes.
“[Surcharges are] a way for dealers to recoup a ton of their profits, but again, it's got to be implemented correctly,” she adds. “It's not something that we would say, ‘I don't want your business unless you're doing it.’ We want everyone's business, of course, but it's hot and it's a way to really make that bottom line look a little better.”
