The Complete Guide To Credit Card Surcharging: Guidelines For Visa, Mastercard, American Express, & More

It’s safe to say that merchant relations with credit card processing companies, card associations, and banks aren’t always friendly. Nor would you expect them to be, especially when merchants find themselves subject to all sorts of fees and limitations imposed by these organizations. Every so often, things reach a peak — for example, the massive class-action lawsuit that merchants filed against Visa and Mastercard. Merchants alleged that they were being charged excessively high fees and that Visa and Mastercard’s surcharge rules kept them from adding a credit card surcharge or pointing customers at less expensive options.

After a decade of fighting in court, the merchants involved in the suit, along with the card networks, reached an expensive settlement — and more importantly, the lawsuit laid the groundwork for merchants to recoup some of the costs associated with credit card transactions. The card associations have changed their rules as a result of the lawsuit.

However, despite the lawsuit and the revised rules from the card networks, it’s far from simple for merchants to begin charging their customers for the cost of processing credit card transactions. In this guide, we’ll take a look at state laws and card association guidelines for surcharging, what you need to do if you want to start adding surcharges, and the limits on which cards you can apply surcharges to, how much you can charge, and how the practice could change in the future.

What Is A Credit Card Surcharge?

Surcharging is the practice of adding a small fee to a credit card transaction to cover the merchant’s costs for processing the payment. Instead of the merchant having to absorb this expense, the customer who chooses to pay by credit card pays for the processing costs that do not apply to other payment methods.

Surcharging is sometimes also known as “zero-fee” or even “free” credit card processing. You might have also heard of cash discounting, which is when the customer receives a discount equivalent to the cost of credit card processing if they pay in cash (or by paper check or debit card).

While both of these methods serve to pass the cost of credit card processing onto the consumer, the only apparent difference between the two is that with surcharging, the extra cost is added to the advertised price. With cash discounting, the cost is deducted from the advertised price when a credit card is not used. For merchants, the most important distinction between these two methods is that cash discounting is legal everywhere in the US, whereas surcharging credit cards is still prohibited in a couple of states and territories.

Get To Know Credit Card Surcharge Laws

Before we discuss the various credit card association guidelines for surcharges, let’s address the question of is it illegal to charge a fee for using a credit card or not. You will need to check the laws for the state(s) your business operates in. Over the past several years, the number of jurisdictions that prohibit credit card surcharging has diminished as legal challenges have resulted in many laws banning the practice being overturned by the courts.

States That Don’t Allow Credit Card Surcharges

In the following states, anti-surcharging laws remain on the books but are unenforceable due to recent court decisions:

• California
• Florida
• Kansas
• Maine
• New York
• Oklahoma
• Texas
• Utah

As of mid-2021, only two states and one US territory don’t allow credit card surcharges. In the following jurisdictions, you won’t be able to impose surcharges (at least for now):

• Connecticut
• Massachusetts
• Puerto Rico

If your business operates in one of the jurisdictions listed above, imposing a credit card surcharge is illegal. However, you can still offer a discount for customers who want to pay by cash or check instead. Some people argue that this “cash discounting” is a matter of semantics, but we’ll come back to that particular point later. For now, the takeaway is that you can incentivize cash-paying customers with a discount, as opposed to discouraging card payments by adding a fee.

There’s one other limitation you need to consider, as well: You cannot impose a prepaid card or debit card surcharge; you can only do so on credit cards. Even transactions processed using signature debit (often referred to as “running a card as credit”) are still debit and are therefore exempt from surcharging. That’s because of the restrictions implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Durbin Amendment specifically deals with debit transactions, including the implementation of a cap on interchange fees. (Worth noting: You won’t see those savings if your processor doesn’t support PIN debit or if you are on a tiered or flat-rate pricing plan.)

Two states require additional disclosures to surcharge credit card processing fees: Maine and New York. In both cases, you must post both the cost of paying with cash and the cost of paying with a card using dollars and cents. This is on top of Visa, Mastercard, American Express, and Discover requirements, which require you to post notifications at the point of sale and specify the surcharge amount.

It’s also important to note that the limitations on surcharging generally only apply to consumer businesses. Separate laws and regulations affect the ability of government agencies and educational institutions to implement surcharges, and these are allowed even in states that prohibit surcharging by consumer businesses.

So how does all of this affect large businesses that have multiple locations? If your business operates in multiple states, you can still add a surcharge in states that allow the practice — just not in the ones with bans. You’ll want to verify that you’re compliant with each state’s credit card surcharge laws as well.

Credit Card Surcharge Rules: Visa, Mastercard, American Express, & Discover

Once you’ve made sure that it’s legal for you to impose a surcharge in a given state, there’s still a bit of legwork and research to be done.

First of all, you need to look at which cards your business accepts because that will affect your policies. Do you accept Visa and Mastercard? American Express? What about Discover? Each of these card brands has set its own guidelines for merchants wanting to add surcharges for credit cards — which means you should meet all of the applicable requirements before you get started.

You’ll find out that the card associations are very firm on making sure that you, the merchant, do nothing to discourage customers from paying with their particular card brand over other brands. (Note that this doesn’t apply to discouraging card use over other payment methods, such as cash, paper check, eCheck/ACH, or debit card.) Fortunately, the overall guidelines for the networks are mostly the same:

1. You must notify the card association and your merchant services provider of your intent, in writing, at least 30 days in advance. (Note: American Express surcharge rules do not require you to provide notice so long as you comply with all other rules.)
2. Surcharge amounts are limited to your effective rate for credit card transactions, capped at 4% (2% in Colorado). In other words, you can’t profit from surcharges; you can only recoup your baseline costs.
3. You must post appropriate notice inside your store, both at the entrance and at the point of sale. Similar rules apply to eCommerce businesses at the checkout page of their websites.
4. You need to include the surcharge amount on the receipt as a separate line item. The surcharge also needs to be included in the network authorization request and settlement. (Note: American Express is the only brand with an exception to this rule.)
5. For Visa and Mastercard, you can choose to apply brand-level surcharges (e.g., all Visa cards) or product-level surcharges (only certain lines of cards). However, you cannot do both.

Once you’ve read and understood the core credit card surcharge rules, there’s still more work to do. You need to notify your merchant acquirer and the relevant card networks that you intend to start imposing a surcharge. Finally, you need to ensure that your payment gateway or processing equipment, as appropriate, is reprogrammed to accurately record the surcharges in accordance with the card network requirements.

Best Practices For Surcharge Processing

Now that we’ve covered the core rules, let’s take a closer look at some of the common questions that come up with surcharge processing, from how much you can charge to who you need to contact.

Notify The Acquirer & Card Networks

The best way to notify your processor of your intent to start surcharging is to reach out to the account representative for your merchant account and ask how they want to proceed. You have to provide written notice, so a phone call isn’t sufficient. But your account representative (or anyone working in the customer service department if you don’t have a dedicated representative) should be able to tell you to whom you should direct that request.

Give Appropriate Notice To Consumers

If you plan to add surcharges, you need to post a notice at the entry to your store letting customers know that you add a surcharge to all credit transactions. You must also post a notice at your point of sale (your register). The notice must include the rate you charge and a comment that it doesn’t exceed your processing fees.

Visa’s website has a resource page for merchants who plan to surcharge their credit card transactions. That includes downloadable sample signage that business owners can post in both places. However, the sample signage is specific to Visa surcharges and doesn’t mention any other card brands. Still, you can use the wording to create your signage.

Note: The requirements for surcharging eCommerce transactions are very similar. While you can’t post a notice at your store entrance, you must include the disclosure in the checkout process, and the surcharge must be featured on the receipt.

Correctly Document Surcharges On Credit Card Transactions

If you plan to implement surcharges, keep in mind that Visa, Mastercard, and Discover require your point of sale system to include the surcharge as a line item (although there are no rules as to the invoice wording for adding a credit card fee). You must also report all surcharges back to your processor and the credit card networks. So before you decide to implement a surcharge, you should check that your existing processing setup supports it. Whether you sell online or in person, your surcharge needs to be included on the receipt as well.

Square does allow for the practice of surcharging, provided that you follow the guidelines outlined above. However, because of the way Square’s system is set up, it deducts the processing fee from the total transaction (after tax, tip, and yes, the surcharge). That ultimately means you won’t be able to perfectly offset your Square fees with a surcharge. There will always be a slight difference that can’t be reconciled. Square specifically says in its help center page on surcharges that some merchants use a third-party calculator app to help them figure out the math.

Common Questions About Credit Card Surcharges

Should You Add A Credit Card Surcharge Policy?

Credit card surcharging has rapidly gained in popularity in recent years as court decisions and legislative changes have gradually removed legal barriers to the practice. The ongoing COVID-19 pandemic has greatly accelerated this trend. Merchants struggling to stay afloat have increasingly turned to credit card surcharging as a way to lower operating expenses and keep their businesses profitable. All but a few states now allow the practice, making it a viable option for most small business owners in the US. Nonetheless, the question remains: Should you add a surcharge?

The answer to this question will depend on both your customers and what your competitors are doing. Implementing a surcharge could potentially cost you some customers. This is especially true for eCommerce merchants or anyone competing directly with big box stores — if you sell the same kind of products readily available on marketplaces such as Amazon and eBay or from Walmart or Target, adding an extra charge might send customers in search of a better deal.

That said, if your product is unique, you have a strong customer following, or you have some sort of other unique value proposition, you’re less likely to feel the pressure to conform to the same practices. Some businesses do have success with the zero-fee processing model. You just need to find a good, reputable company that can help you implement the necessary technology, either in your store or on your website.

And here’s one final thought to consider: If your merchant fees are getting to be prohibitively high, it might be time to look for a new processor instead of resorting to implementing a surcharge. If you’re on a tiered or flat-rate pricing plan, we encourage you to look for an interchange-plus option, which is more affordable and transparent. (Note that flat-rate pricing is actually the best option for very small or seasonal businesses due to the lack of additional account fees.) Check out our top-rated merchant account providers to get started, or look at our article, Six Signs Your Small Business Needs To Switch Payment Processors, to confirm what you already suspect.

Have more questions about surcharging? Leave us a comment, and we’ll do our best to help you get the answers you need!