Your Complete Guide To Credit Card Surcharges
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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, 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, alleging that they were being charged excessively high fees and that guidelines 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.
Surcharging is the practice of adding on a small fee to a transaction to cover the merchant’s costs for credit card transactions. It’s ultimately just asking the customer to pay for the convenience of being able to use their card.
However, despite the lawsuit and the revised rules from the card networks, it’s far from simple for merchants to begin adding surcharges to their 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.
A Discount Is Not a Surcharge
Note that while there are somewhat complicated regulations about surcharging, a common loophole to offset processing costs is something called “cash discounting.” This refers to a processing system that is designed to have the credit card rate be the baseline; a discount is offered for cash and debit customers. This is technically not a surcharge. Our favorite payment processor that sets up cash discounting (aka “Zero Fee”) credit card acceptance is National Processing (see our review).
We've done in-depth research on each and confidently recommend them.
Table of Contents
Card Associations Allow Surcharging, But Not All States Do
Before you even look at card association guidelines for surcharges, you need to check the laws for the state(s) your business operates in. At the time of writing this, several states have bans on credit card surcharging, justified on the grounds that it’s unfair to consumers. Others have had their bans challenged and overturned.
States that currently prohibit surcharging:
- Colorado
- Connecticut
- Kansas
- Massachusetts
- Oklahoma
States where “No-Surcharge” laws have been found unconstitutional and are enjoined from being enforced:
- California
- Florida
- Texas
If your business operates in one of these states, it’s illegal to impose a surcharge. 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 surcharge on debit or prepaid cards, only 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 debit or if you are on a qualified/tiered 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 the requirements of Visa, Mastercard, American Express, and Discover, which require you to post notifications at the point of sale and specify the amount of the surcharge.
In addition, it’s 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 surchaging 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 laws on surcharging, as well.
Card Association Requirements for Surcharging
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 take a 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 who want to add surcharges — which means you should reach each of their requirements before you get started.
You’ll find out that the card associations are very, very firm on making sure that you, the merchant, do nothing to discourage customers from paying with their particular brand of card over other brands. (Note that this doesn’t apply to discouraging card use over cash, check, echeck/ACH, or debit.) Fortunately, the overall guidelines for the networks are mostly the same:
- You must notify the card association as well as your acquirer/ISO (in other words, your merchant account 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.)
- Surcharge amounts are limited to your effective rate for credit card transactions, capped at 4%. In other words, you can’t profit from surchages; you can only recoup your baseline costs.
- 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.
- 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.)
- For Visa and MasterCard, you can choose to apply brand-level surcharges (all Visa cards, for example), or product-level surcharges (only certain lines of cards). However, you can’t do both.
Once you’ve read and understood the core rules that affect surcharging, there’s still more work to do. You need to notify your merchant acquirer and the relevant card networks that you intend to start providing a surcharge. Finally, you need to make sure that your POS is capable of recording the surcharges to comply with the card network requirements.
FAQs About Credit Card Surcharging
Now that we’ve covered the core rules, let’s take a closer look at some the common questions that come up with credit card surcharges, from how much you can actually charge to who you need to contact.
What Is The Maximum Surcharge Allowed?
The maximum surcharge amount allowed is 4% of the total transaction amount. However, merchants should be calculating their surcharge based on their effective rate — that is, the total amount of fees incurred for accepting credit cards, averaged out per transaction. The effective rate can be based on either the previous 12 months or the month prior. Your effective rate for Visa and Mastercard transactions should be more in the range of 2.5-3% depending on your processor’s markup and your volume. (If your effective rate is much higher or it exceeds the cap of 4%, it’s probably time to switch payment processors.)
However, here’s where things might get a bit frustrating for merchant: You can’t assess a higher surcharge for one card network than another. So even though American Express’s interchange rates for certain industries are higher than those of Visa or Mastercard, you have to assess the same surcharge for all cards.
Section 3.2 of American Express’s merchant guide, “treatment of the American Express brand,” says that merchants cannot “impose any restrictions, conditions, disadvantages, or fees when the Card is accepted that are not imposed equally on all Other Payment Products, except for electronic funds transfer, or cash and check,” among other rules.
That said, since the surcharge amount should be based on your effective rate, it should average out over time. Check out our article How Much Should You Pay For Credit Card Processing? to learn more about calculating your effective rate.
What Is Considered 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 as well as a comment that it doesn’t exceed your own 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, and doesn’t mention any other card brands. Still, you can use the wording to create your own signage.
Note: The requirements for surcharging ecommerce transactions are very similar. While you can’t really post a notice at the entrance to your store, you must include the disclosure in the checkout process and the surcharge must be featured on the receipt.
How Can I Correctly Document Surcharges?
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, as well as reporting it back to your processor and card networks. So before you decide to implement a surcharge, you should check that your existing processing setup supports it. If not, time to go shopping. (Just make sure you do your price comparisons — don’t lose money on a POS or credit card terminal just so that you can offset your card costs!) 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 to follow other guidelines (including notifying Visa and Mastercard). 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.
What’s The Difference Between Product-Level & Brand-Level Surcharges?
This is where surcharging gets to be a bit tricky because of the guidelines about not favoring one network over the other. If you’re accepting American Express/Discover, you should just implement brand-level surcharges to protect yourself. If you’re only accepting Visa and Mastercard, you’ve got a bit more flexibility here.
Product-level surcharges apply to specific lines of cards. You can assess different surcharges for some products. After all, rewards cards and commercial cards do often cost more than your standard consumer card. However, you’ll need to meet Visa and Mastercard guidelines for product-level surcharging.
How Do I Notify my Acquirer & The 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.
Card Network Resources for Surcharging:
- Visa Surcharging FAQ
- Visa Small Business Resource Center: Regulations and Fees
- Mastercard Surcharging Rules
- American Express Merchant Reference Guide
- Discover Merchant Acceptance Page
Should You Add A Credit Card Surcharge?
Assuming you’re in a state that allows surcharges, and you’re willing to put in the time and effort to make sure you are compliant with the guidelines, the question still remains: Should you add a surcharge?
It depends on your customers, as well as your competitors. Implementing the surcharge could potentially cost you 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-free 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. If you’re on a tiered or qualified pricing plan, we encourage you to look for an interchange-plus option, which is more affordable and more transparent. Very small businesses might be better served with a flat-rate pricing option. 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!
In Case You Missed It...
Note that while there are somewhat complicated regulations about surcharging, a common loophole to offset processing costs is something called “cash discounting.” This refers to a processing system that is designed to have the credit card rate be the baseline and offers a discount for cash and debit customers. This is technically not a surcharge. Our favorite payment processor that sets up cash discounting (aka “Zero Fee”) credit card acceptance is National Processing (see our review).
We've done in-depth research on each and confidently recommend them.
Melissa Johnson
Melissa Johnson has been writing about payment processing and mobile payments since 2014, and has been quoted in articles for Credit Karma and The Next Web, among others. She graduated from The University of Kansas in 2010 with bachelor's degrees in English and journalism.
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Hello would like to know if in New Jersey is ban to charge a surcharge on the total amount of the service.
Thank you!
Hi Stefany,
New Jersey does not ban the practice of adding a surcharge. Hope this helps!
Hello Lisa,
Do you have a list of companies that provide zero fee credit card processing (surcharging) services, similar to CardX?
Thanks!
This comment refers to an earlier version of this post and may be outdated.
Hi Francis,
We do have an article on this topic, though no list at this time. Best of luck!
This comment refers to an earlier version of this post and may be outdated.
Hi Melissa,
I a an ISO direct with FD. You should know that in performing the compliance process which can take months. They will not allow you to take any Debit Cards (Pin or Otherwise) and they say you must turn off Amex because fo the playing field not being level. I am not sure how other processors handle the compliance process piece. But the whole process has become so discouraging most of my merchants attempting to doit just give up. This is all due to the fact that they are giving up the possibility of more revenue that outweighs the discount.
This comment refers to an earlier version of this post and may be outdated.
Melissa,
1. Can I charge a 4% surcharge regardless if it is a swipe or keyed credit card transaction?
2. How do I determine if they are using a credit card or debit card?
Brian
This comment refers to an earlier version of this post and may be outdated.
Hi Brian,
Thanks for your questions! To answer your first question, Visa allows surcharging at the brand level (all visa products) or at a product level (a surcharge for, say, business rewards cards). The actual surcharge amount needs to be posted at the point of sale. So transaction type (swiped or keyed) would not factor in here.
Second, as for debit or credit cards, this is exactly what Visa rules say:
“Merchants with Acceptance Devices that offer Cardholder choice for debit Transactions in the form of “credit” and “debit” buttons must ensure that:
– Visa debit Card Transactions are not assessed a US Credit Card Surcharge
– It is made clear to the Cardholder that surcharges are not permitted on debit Transactions regardless whether a Cardholder selects the “credit” or “debit” button”
So from that, it’s clear that if the card says “debit” on it, you can’t charge a credit card surcharge even if the customer processes it at a credit card rather than entering a PIN. The Surcharge rules start on page 378. I hope that helps!
This comment refers to an earlier version of this post and may be outdated.
I work for Broker of credit cards. If we have information on an ISO signing up businesses with no 30 day notice to card brands and charge 4% on all cards including debit cards, how do we submit the information to Visa/MC?
This comment refers to an earlier version of this post and may be outdated.
Hi Linda,
Our understanding is that you can report it via the Visa and Mastercard websites, or you can even call Visa directly or send a written report. Alternatively you might be able to report them to consumer financial protection bureau.
This comment refers to an earlier version of this post and may be outdated.
Several of our vendors in Florida and Texas who accept credit cards charge us a percentage of the total as a surcharge if we pay by card instead of a check or other method. Are they allowed to do this? I haven’t been able to figure out of the ban in these states is valid or not, so have been hesitant to call the vendors our on this.
Thanks.
This comment refers to an earlier version of this post and may be outdated.
Hi Michielle!
According to Visa:
“Q. Is a merchant allowed to add a surcharge to the purchase amount for using a Visa card?
A. In general, no. Surcharging is currently permitted in Australia, Mexico, and New Zealand, and on certain credit card transactions in the U.S.
Surcharging isn’t allowed everywhere in the U.S. Currently, there are laws limiting surcharging in Colorado, Connecticut, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. California’s and New York’s laws limiting surcharging have been enjoined from enforcement pursuant to court orders, but appeals are pending. An order upholding Florida’s law limiting surcharging was reversed on appeal, but remains subject to further litigation. Consumers who are subjected to a surcharge in states where they may be prohibited from surcharging may want to report the retailer to their state attorney general’s office.”
I hope that answers your question. Best!
This comment refers to an earlier version of this post and may be outdated.
With the regulation that surcharges cannot exceed 4%, how are local government agencies getting away with charging flat fee ‘surcharges’, eg. $10 for all police citations? In come cases that may be less than 4%, but significantly more in others. Aren’t they held to the same standards?
This comment refers to an earlier version of this post and may be outdated.
Hi Adam,
They’re likely passing them off as convenience fees, which have different regulations. You can read about this here.
This comment refers to an earlier version of this post and may be outdated.
We have a local restaurant that is charging a flat 69 cent surcharge on credit cards and debit cards. This fee is charged irregardless of the total amount charged. This can equate to a 8-10% fee on a small meal. Is this allowed or legal?
This comment refers to an earlier version of this post and may be outdated.
Hi Steve,
Without knowing where you are located, it is really hard to say. Generally, surcharges are supposed to be capped at 4%, however, if they’re passing it as a convenience fee, it might technically be acceptable, but I believe they should be capped at the processing amount.
This comment refers to an earlier version of this post and may be outdated.
Has anything come of the New York case? Are all states allowed to now process surcharges? We recently started a surcharge program at our restaurant. It has been testing… Not all people are generally excepting whether they are told before purchase or not.
This comment refers to an earlier version of this post and may be outdated.
Hi Justin,
There is a recent post in the Lexology library titled: NY’s Highest Court Will Consider Credit Card Surcharge Ban. That may have the info you are looking for. Hope that helps!
This comment refers to an earlier version of this post and may be outdated.
Hi,
Great article, thank you. I have a real life example for you. I live in Kansas in an apartment complex. Until very recently, the management were charging fees to pay rent using credit card. They now have stopped us from paying by credit card claiming that a “new” law was passed in Kansas prohibiting them from charging fees for credit card use. I looked into this and it appears this law is not “new” at all, it has been here for many years. Does this mean my apartment community has been breaking the law for a long time and have potentially stolen thousands of dollars from renters like me? If yes, what do they risk and what can we do to rectify the wrong that was done?
Thank you,
Stephane
This comment refers to an earlier version of this post and may be outdated.
Hi, Stephan!
There’s a lot of details I’m missing, so unfortunately I can’t give you a solid answer. It certainly sounds like your apartment complex might have gotten called out for some dodgy behavior. However, keep in mind it may not actually be your apartment complex doing the payment processing. They might have a white-label setup powered by someone who handles the transactions anonymously. And they might have switched processors, or gotten new (smarter) management, which could contribute to the change in policy. I certainly think it’s possible that your complex management could and would lie about the reasoning to mitigate any sort of negative fallout with residents.
The problem is that while surcharges are banned, convenience fees aren’t. As a fellow Kansas resident, I have paid a LOT of convenience fees for online payments (especially for utility bills). My apartment complex charges a convenience fee for credit transactions and uses a separate processor to accept e-checks.
I can’t find specifics on what to do in Kansas if you suspect that you’re paying an illegal surcharge but I do know that generally speaking if a company gets caught violating card association rules or local laws, they could potentially have their merchant account terminated, making them unable to accept cards unless they can find another processor willing to take them on. (Effectively, that means you’d have to drop a check off in person every month instead of paying online.) If you’re genuinely really concerned, talk to a local consumer advocacy group or the state’s attorney general, and see if there’s anything that can be done. But otherwise, as a fellow consumer, I advise always paying with ACH/bank accounts where you can!
This comment refers to an earlier version of this post and may be outdated.
I work at a preschool. We are supposed to begin adding a surcharge to credit card users at the school. We will be using a credit card processing company called CardX. Are they responsible for notifying the credit card company of our intention? Has anyone used them? This seems to be more complicated than they made it sound over the phone.
This comment refers to an earlier version of this post and may be outdated.
Hi Terry,
Unfortunately, we have not reviewed CardX Processing, so we can’t confidently give an assessment one way or the other, that being said, I suggest contacting them directly. Best of luck to you!
This comment refers to an earlier version of this post and may be outdated.
My company accepts all credit cards (VISA, MasterCard, Discovery and, American Express). We use PayPal as our credit card processor. We would like to add a handling fee to help offset some of the expense of the PayPal fees. We are located in South Carolina, Mississippi, Pennsylvania, and Oklahoma and sell in various other states. Would this be appropriate?
This comment refers to an earlier version of this post and may be outdated.
Hi Phil,
Per their user agreement, it appears that it would not be appropriate.
This comment refers to an earlier version of this post and may be outdated.
Hey Phil,
I work with a company that has a program that allows you to share or pass on all of the card fees to your customers. Card Payment Solutions is based in Florence, SC and we would be more than happy to explain how this can benefit your company. You can contact someone through the website, or you can also contact me at chad.cpsolutions@gmail.com or by phone at (864)293-9733. I’m not sure what part of SC you have locations, but I am based out of Greenville and would be happy to meet with someone if they are in the upstate. Hope this helps!
This comment refers to an earlier version of this post and may be outdated.
I wondered it a surcharge can be levied for certain types of transactions but not others. In other words, if you charge a surcharge for one thing to you have to charge it for everything?
This comment refers to an earlier version of this post and may be outdated.
Hi, Patty!
You can’t pick and choose which products or types of transactions to add a surcharge for, unfortunately. What you can choose is whether to surcharge at the brand level (all Visa transactions, which means all MasterCard and all Discover cards, and therefore all American Express cards), or at a card level — only particular kinds of cards (namely those with higher fees). However, surcharging at the card level seems a bit complicated to me because all of the networks’ surcharging rules are linked. Visa and MasterCard’s are identical, for example. American Express basically says you can’t add a surcharge ONLY for Amex cards (Which would discourage customers from using those cards).
I recommend checking out Visa’s Q&A on surcharging. It’s helpful, though it’s by no means comprehensive.
https://usa.visa.com/dam/VCOM/download/merchants/surcharging-faq-by-merchants.pdf
This comment refers to an earlier version of this post and may be outdated.
“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.”
Is there case law or some other authority to support the above?
Thanks.
-M
This comment refers to an earlier version of this post and may be outdated.
Hi, Mira!
The best source is actually the card networks, since they set the guidelines.
From Visa’s Surgcharging Q&A for Merchants:
“Q. I operate stores in multiple states. I understand that state laws prohibit me from
surcharging in some states where I operate, but not others – does that mean I can’t
surcharge in any of the states where I operate?
No. If a merchant is prohibited from surcharging in one state, Visa’s rules do not prevent the
merchant from surcharging in other states that allow the practice. ”
https://usa.visa.com/dam/VCOM/download/merchants/surcharging-faq-by-merchants.pdf
Hope this helps!
This comment refers to an earlier version of this post and may be outdated.
Tovi,
I wouldn’t think that surcharging a donation is a good idea. The benefactor is already giving probably at the level they are comfortable with. I would think that surcharging would hurt donations more than the offset of fees.
I personally know people that will leave a smaller tip when they are surcharged because they feel like the surcharge is already on top of the price, just like a tip.
This comment refers to an earlier version of this post and may be outdated.
I have a Visa debit card. The merchant charges a surcharge on my card saying they record it as a credit not a debit. They say they don’t accept debit payments. Is this legal?
This comment refers to an earlier version of this post and may be outdated.
Phil,
Unfortunately, we don’t know the answer to this question. If you happen to figure it out, please let us know as it will help our other readers.
This comment refers to an earlier version of this post and may be outdated.
HI Phil,
This is not legal for the merchant to do on the surcharge program. It would put them in violation of the surcharge rules. The person who is really at fault is the credit card processing company. In order for the debit to be recorded as debit and not credit, the processing company would have to enable that function on the terminal.
Feel free to reach out to me with any questions.
This comment refers to an earlier version of this post and may be outdated.
Hello,
What are your findings on Non-Profit organizations charging a Surcharge for donations?
Thanks!
This comment refers to an earlier version of this post and may be outdated.
Tovi, we’ve never heard of such a thing, but if you can find us some examples, we’d love to see them.
This comment refers to an earlier version of this post and may be outdated.
Does the Colorado ban impact both the buyer and the seller? If my business is HQ in a state permitted to surcharge, can I put a surcharge on an e-commerce sale being shipped to a customer in Colorado?
This comment refers to an earlier version of this post and may be outdated.
Hi, Lisa!
Surcharging is allowed on CNP (eCommerce transactions), provided you follow all of the other requirements. However, commerce in general is governed by individual states, so the laws and requirements vary. I can’t find any specifics about surcharging across borders as you’ve indicated. I recommend talking with an accountant or lawyer to make sure you are absolutely clear on what you can and cannot do.
This comment refers to an earlier version of this post and may be outdated.