Is it Legal to Charge Customers a Credit Card Processing Fee?

Is it Legal to Charge Customers a Credit Card Processing Fee?

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All merchants are allowed to charge their customers a convenience fee for using a credit card if the customer is using a non-customary payment channel. For example, if a business primarily accepts payments in person, a convenience fee may be added if their customer uses a mail or telephone order.

The practice of always charging customers a fee for credit card payments, no matter how the transaction takes place, is called a surcharge. These are currently prohibited in 10 states—Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

When Credit Card Surcharges Are and Aren't Permitted

Credit card surcharges are currently permissible unless otherwise restricted by state or federal laws. However, businesses are still required to follow certain protocols to make sure consumers are not caught off guard by these charges. Visa, Mastercard, American Express and Discover all require retailers to display a notice of the surcharge at the point of sale. This applies to both in-store and online. Furthermore, a consumer's receipt must clearly indicate a surcharge was added to the bill.

Surcharges cannot be imposed on debit or prepaid debit transactions. This holds true even if a cardholder chooses "credit" as an option when using their debit card.

The surcharge regulations outlined above only apply within the United States. The credit card associations prohibit merchants from adding surcharges to card payments abroad. These policies used to be the same globally as in the U.S. However, following a prolonged legal battle between merchants and the card associations, a settlement was reached in 2013 that allowed merchants to charge their customers surcharges in the United States.

Convenience Fees

Convenience fees are a subset of credit card surcharges, and are permitted in all states. However, laws govern when a business can and cannot charge their customers a fee.

Convenience fees, like surcharges, must be clearly displayed at the point of sale. Therefore, if you discover a fee only after the transaction is processed, you can submit a complaint with your credit card network. The network will then follow up with the merchant in question.

Credit card convenience fees can only be charged when a merchant is offering an alternative method of payment, one that's different from how it normally conducts business. This distinction exists because the fee is applied towards the way the transaction is handled, instead of the actual payment method. To clarify: a museum in New York may not impose a convenience fee at the register, if that is how most people buy their tickets. However, if they launch a program which allows individuals to purchase tickets online by inserting their credit card details, a convenience fee may be added. The convenience fee is paid because of the payment by online, and not specifically because the customer used a credit card.

The rules that govern convenience fees do not apply to government and educational institutions. These organizations are allowed to charge convenience fees both in person and online.

Should Businesses Impose Surcharges and Convenience Fees?

If the state where your business is located allows credit card surcharges, you should still consider the pros and cons before imposing them Extra fees are generally frowned upon by consumers. If credit card surcharges are prevalent in your local market, adding them may not discourage customers. However, if you're one of the only businesses in your area to impose such fees, you may be deterring potential customers.

Credit Card Surcharge QuestionsAnswers
Are there limits on the surcharge amount?Yes. Merchants cannot charge more than the actual cost of credit card processing or 4%, whichever is lower.
What types of cards can surcharges be applied to?Credit cards only.
Do surcharges need to be refunded?Yes. If a customer refunds a purchase, the business must also refund the credit card surcharge as well.
Can different surcharges be applied to different cards?Yes. Merchants can apply surcharges according to the brand or card, or its type. For example, a retailer may impose surcharges only on American Express cards, or only on Rewards cards.
Where must a business place surcharge notices?Both at the point of sale and on the customer's receipt.

Unfortunately, there's no available research on the effects of surcharges and their prevalence within the United States. The closest corollary was a survey put out by the Australian government. The survey found that 68% of respondents believe retailers and other businesses should not be allowed to charge customers extra for credit card payments.

The biggest reason merchants have for adding credit card surcharges is to deal with high credit card processing costs. The maximum allowable surcharges cover the fees your processor charges per transaction, with money to spare.

However, you must weigh that small profit against the potential profit loss from turning away some customers due to the surcharges.

A business that wishes to start imposing credit card surcharges must also notify any of the credit card associations it accepts payments through (Visa, Mastercard, Amex, Discover, etc.) at least 30 days in advance of beginning to collect charges. American Express is the only network that does not require this notification. You can read more about the specific rules of surcharges a business must follow, along with accessing the needed online notification forms, here:

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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