Are Credit Card Surcharges Legal?

Nov 9, 2021

As a merchant, it can be tempting to implement a credit card surcharge for customers who pay with a Visa, Mastercard or American Express. These charges help you recoup the fees you pay for processing such transactions and ultimately, doesn’t that protect your bottom line?

But before you start passing credit card processing fees down to your customers, it’s crucial that you have a solid understanding of the legalities surrounding this practice. While some states overlook it altogether, others have placed a ban on surcharging and that could land you in some serious hot water if you break the rules.

Below, we discuss credit card surcharges, the laws that govern them and ways you can avoid paying exorbitant fees to credit card companies.

What Are Surcharges?

Credit card surcharges are small fees that are tacked onto your customers’ transactions, and in most cases, they’re used to cover the merchant’s processing fees. Often these charges are associated with credit card payments because other payment methods, such as cash and debit, don’t cost the merchant anything while credit cards are typically subject to nominal processing fees, which companies like Visa and Mastercard expect the merchant to absorb.

Cash Discounting

An alternative to surcharging that’s often seen is cash discounting. This is when a merchant increases the cost of their goods or services to make up for the expense of processing credit card transactions. In this scenario, customers who choose to pay cash receive a discount while those paying credit are on the hook for the full advertised price. While surcharges are illegal in some parts of the U.S., cash discounting is seen as a loophole and has no legal repercussions.

What’s the Law When it Comes to Surcharging?

The laws surrounding credit card surcharging vary depending on the state you operate your business in. While some states ban credit card surcharges by law, several are unable to enforce those laws due to court cases that have been overturned. Those states include:

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

While the states mentioned above don’t enforce laws surrounding credit card surcharges, there are three places within the U.S. that do enforce bans on surcharging. That includes:

  • Connecticut
  • Massachusetts
  • Puerto Rico

Although credit card surcharges are illegal in these jurisdictions, cash discounting remains a legal practice that can help you recoup the costs associated with credit card processing.

Other Surcharging Rules to Remember

When it comes to surcharging, it’s important to operate within the regulations put forth by your state’s regulating agency, as well as by your bank, your credit card processor, and the credit card companies you work with such as Visa and Mastercard. It’s worth noting that these surcharging laws are only applicable to credit card transactions and in fact, it’s not legal to impose any additional surcharges on customers paying by other means — and that includes debit cards and cheques.

Other things to keep in mind are laws and regulations regarding the notice you provide to customers regarding any surcharging policies you have in place. In some states, particularly Maine and New York, you need to provide customers with a clear comparison of the cost of paying cash vs. paying with a credit card. In other states, you may be required to post a written notice near your cash register if a surcharge is required.

Additionally, Visa, Mastercard, American Express and Discover each have their own sets of rules that must be followed when it comes to surcharges. When these rules aren’t followed, merchants may run the risk of losing their processing capabilities.

Credit Card Company Surcharging Rules

While the rules for imposing surcharges can vary slightly among the credit card issuers, you can expect the following to apply regardless of which card you’re processing:

  • Card associations and merchant services providers must be notified of surcharge policies in writing
  • Surcharge amounts may not exceed your credit card fees
  • Notice of surcharge policies must be posted at the point of sale
  • Surcharge amounts must be clearly indicated on receipts

Is it Worth it to Add a Credit Card Surcharge?

With most states refusing to enforce credit card surcharging laws, many merchants across the U.S. have taken to adding surcharges to customer credit card transactions. This practice has helped many recoup costs and reduce operating expenses; however, the practice does come at a cost and there are several things to consider.

  • Your Customers: How will your customers feel about paying an additional charge at the register? If you’re at risk of losing valuable customers, it might not be worth it.
  • Your Hardware: The machine you use to process transactions needs to be set up to add surcharges automatically and most likely, you’ll need your merchant services provider to set this up for you.
  • Accounting: You’ll need to set your system up to add surcharges where needed and keep track of the surcharges you’ve imposed.
  • Cash Discounting: This practice is often far less frowned upon by customers and can provide you with a much easier way to recoup costs.

If you’re thinking about implementing a credit card surcharge policy, chances are you’re tired of paying high processing fees. If your credit card processing company is starting to cost you more than it’s helping you earn, it may be time to consider negotiating a new fee or start searching for another company to handle your transactions. Consider the benefits of working with a high-risk payment processor such as PayDiverse, which include low processing fees, quick payouts and 24-hour support. You can learn more by completing an application online.

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