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Your Complete Guide to Credit Card Surcharges

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It’s safe to say that merchant relations with credit card processing companies, the card associations, and the 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. And every so often, things reach a peak — say, the massive class-action lawsuit that merchants filed against Visa and Mastercard, alleging that they were being charged excessively high fees and guidelines kept them from adding a credit card surcharge or pointing customers at less expensive options.

After a decade of fighting in court, the parties reached an expensive settlement — and more importantly, the lawsuit laid the groundwork to allow merchants to apply surcharges to credit card transactions. The card associations have changed their rules on this often-contentious matter as a result of the lawsuit. So even though the settlement was vacated in 2016, it has little bearing on the practice of surcharging.

Surcharging is merely the practice of adding on a small fee to a transaction — in this context, to cover the merchant’s costs for credit card transactions. However, it is 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 baseline and offer 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).

Talk to National Processing about Cash Discounting

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, 10 states have bans on credit card surcharging, justified on the grounds that it’s unfair to consumers. Those 10 states are:

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • 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 it’s 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.

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.

And then, of course, there’s the other limitation you need to consider: You cannot impose a surcharge on debit or prepaid cards, only credit. 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 implementing a cap on interchange fees. (Worth noting: You won’t see those fees if your processor doesn’t support debit or if you are on a qualified/tiered pricing plan.)

Check out this infographic from CardFellow for a more visual breakdown of credit card surcharging.

Card Association Requirements for Surcharging

Once you’ve made sure that it’s legal for you to impose a surcharge, 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. Then, you’re going to need to provide your merchant acquirer and the relevant card networks that you intend to start providing a surcharge. You also need to make sure that your POS is adequately capable of recording the surcharges in your system.

Surcharging Requirements According to the Card Networks

Do you accept Visa? MasterCard? American Express? What about Discover? The card associations have each set their 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 the other options (save for cash, check, or EFT/debit). Fortunately, the overall guidelines for the networks are the same:

  1. There are limits on the surcharge amount.
  2. You must post appropriate notice inside your store.
  3. You need to include the surcharge amount on the receipt (as a separate line item), in the network authorization request, and in settlement. (Which means you need a POS capable of supporting this feature. Sorry, mPOS users.)
  4. 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.
  5. You must notify the card association as well as your acquirer/ISO (in other words, your merchant account provider), in writing, at least 30 days in advance.

What’s the Maximum Surcharge Allowed? 

Visa and MasterCard’s guidelines are the baseline rule here. You can’t apply a fee larger than your discount rate (i.e., the swipe fees you pay to your processor), up to a maximum 4%. So if your swipe rate is above 4% (which it /really/ shouldn’t be except for a few select types of cards), you still can’t charge anything above that.

However, here’s where things get a bit frustrating for merchant: You can’t assess a higher surcharge for one card network than another. That’s specifically laid out in American Express’ merchant guidelines. Given that most AmEx swipe fees are higher than Visa or MasterCard, you’re still going to lose a little bit of money, because you can’t charge more for AmEx than Visa or MasterCard. Same goes for Discover.

What’s Considered Appropriate Notice? 

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.

What About Recording my Surcharges in my POS? 

Your POS must be capable of including the surcharge as a line item, as well as reporting it back to your processor and card networks. That means you can’t assess a surcharge while using an mPOS system such as Square or PayPal Here. In fact, you’ll find their terms of agreement actually prohibit the practice.

So before you decide to implement a surcharge, you should check that your POS supports it. If not, time to go shopping. (Just make sure you do your price comparisons — don’t lose money on a POS just so that you can offset your card costs!)

What’s the Difference Between Product-Level and 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/ISO and the Card Networks? 

Your best bet is to reach out to your account representative for your merchant account and ask how they want to proceed. You’ll have to provide a written notice, so a phone call isn’t sufficient. But they’ll be able to tell you to whom you should direct that request.

Card Network Resources for Surcharging: 

What Does the Future of Surcharging Look Like?

The card payment industry does change over time. Slowly, sometimes, but it does change nonetheless. One interesting turn of events that is still playing out is the U.S. Supreme Court’s accepting a case from New York merchants trying to strike down the ban on surcharging.

The case has been fighting its way through the courts for a while now. Merchants contend that current regulations limit their free speech (instead of just their behavior) by forcing them to issue discounts for cash instead of stating that there’s a surcharge for credit cards. Given that this is the Supreme Court, the ruling could have consequences on all the other state bans. So you may want to pay attention to this case.

Final Thoughts: Should You Add a Credit Card Surcharge?

Assuming you’re in a state that allows surcharges, and you’re not using an mPOS, 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. Implementing the surcharge could, in fact, cost you customers (there’s no definite answer on that, unfortunately) — losing you more money than you’d save by offsetting credit cards. You’ll have to decide whether your customers are the kind who don’t mind paying the extra fee.

And if your POS doesn’t support the necessary features, you’ll have to shop for a new POS. Make sure that the cost doesn’t negate what you save by passing on credit card fees.

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. Check out our top-rated merchant account providers to get started.

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 baseline and offer 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).

Talk to National Processing about Cash Discounting

Melissa Johnson

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.
Melissa Johnson

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30 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Shelley Charlton

    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.

      Brian

      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

        Jessica Dinsmore

        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!

          Michielle

          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.

            Jessica Dinsmore

            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!

              Adam Weddle

              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?

                Jessica Dinsmore

                Hi Adam,

                They’re likely passing them off as convenience fees, which have different regulations. You can read about this here.

                  Steve Washburn

                  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?

                    Jessica Dinsmore

                    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.

                      Justin

                      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.

                        Jessica Dinsmore

                        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!

                          Stephan

                          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

                            Melissa Johnson

                            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!

                              Terry

                              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.

                                Jessica Dinsmore

                                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!

                                  Phil

                                  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?

                                    Jessica Dinsmore

                                    Hi Phil,
                                    Per their user agreement, it appears that it would not be appropriate.

                                      Chad Smith

                                      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!

                                        Patty Hall

                                        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?

                                          Melissa Johnson

                                          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

                                            Mira

                                            “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

                                              Melissa Johnson

                                              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!

                                                Samuel Smith

                                                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.

                                                  Phil T

                                                  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?

                                                    Jessica Dinsmore

                                                    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.

                                                      Gavi

                                                      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.

                                                        Tovi

                                                        Hello,

                                                        What are your findings on Non-Profit organizations charging a Surcharge for donations?

                                                        Thanks!

                                                          Jessica Dinsmore

                                                          Tovi, we’ve never heard of such a thing, but if you can find us some examples, we’d love to see them.

                                                            lisa

                                                            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?

                                                              Melissa Johnson

                                                              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.

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