As a business owner, you’ve probably considered adding a credit card surcharge to your products to offset credit card processing fees. However, you may also wonder if doing so is legal.
In this article, we'll explore the legality of credit card surcharges, the rules and regulations surrounding them, and how to find out whether your business can legally charge surcharges.
What is a Credit Card Surcharge?
You may or may not have heard of a credit card surcharge before, but you’ve probably paid credit card surcharges countless times without noticing.
Simply put, a credit card surcharge is an extra fee that merchants add to their credit card transactions to offset the cost of paying credit card processing fees. A typical credit card surcharge is a percentage of the purchase amount.
Unsurprisingly, credit card surcharges are sometimes called ‘zero-fee’ or ‘free’ credit card processing because they make the customer pay for the processing costs instead of the merchant.
But while surcharges are legal in some states, they are prohibited in others. Whether or not a business can legally charge a credit card fee depends on the state in which they operate and the credit card association's policies.
Is it Legal to Charge a Credit Card Fee?
The legality of credit card surcharges is a complex issue that’s seen its fair share of rollercoaster ups and downs in the past few decades. Fortunately, recent laws have been very favorable for all business owners looking to save more of their revenue.
In 2013, a major milestone settlement was reached in a class-action lawsuit between merchants and Visa and Mastercard. As a result of this settlement, merchants in nearly all 50 states are now allowed to charge a credit card surcharge (but not a debit card surcharge, which remains illegal nationwide) as long as they follow specific rules and regulations.
That being said, a couple of states still prohibit credit card surcharges.
And while none of the major credit card companies ban surcharges outright, you must follow specific rules and regulations that differ depending on the credit card association to implement surcharges at your place of business (more on this later).
Where Are Credit Card Surcharges Legal?
The good news is that while the legality of surcharges has been murky in the past, as of 2023, credit card surcharges are now legal in all U.S. states except for Connecticut and Massachusetts. (Credit card surcharges are also prohibited in Puerto Rico, just in case you were wondering.)
The complete list of U.S. states where credit card surcharges are not prohibited includes:
Does this mean you can't charge credit card surcharges if your business operates in Connecticut, Massachusetts, or Puerto Rico? Unfortunately, it does mean just that.
But you can still offer discounts for anyone willing to pay via cash or check instead of card.
Some lawyers argue this type of “cash discounting” is the same thing, but they don’t have a legal leg to stand on.
The main takeaway is that even in states where credit card surcharges are illegal, you can still legally incentivize cash-paying customers with discounts vs. discouraging credit card payments by adding a surcharge fee.
What are the Rules & Regulations for Credit Card Surcharges?
If you're considering adding a credit card surcharge to your business, it's important to understand the rules and regulations surrounding them. Here are four major, big-picture rules to keep in mind:
- Customers need to know about surcharges before they make a purchase. This can often be as simple as appropriately placed signage in a store.*
- Surcharges can’t be greater than your credit card processing fees. (which are capped at 3% nationwide, except in Colorado, where the processing fee cap is 2%). So if your credit card processing fee is 3%, your surcharge can, at most, be the same.
- Surcharges must be a percentage of the purchase price, not a flat fee. This makes sense because otherwise, you’d risk violating the second rule.
- Surcharges cannot be applied to debit card transactions. This is so important it’s worth repeating. You cannot, under any circumstances, charge debit card surcharges.
These rules and regulations vary slightly by state. Some states have additional requirements that businesses must follow to charge a credit card fee.
*NOTE: E-commerce companies can also charge credit card surcharges on their websites, although the rules vary slightly. For example, an e-commerce website must have digital signage on its checkout page instead of physical signage to notify customers in a store.
What about surcharge rules for major credit card companies?
Great question. While all four major credit card issuers—Visa, Discover, Mastercard, and American Express—permit credit card surcharges, they each have slightly different rules and regulations to follow if you want to start charging them at your place of business. (Example: here are Visa’s rules on surcharges).
Here are some (but not all) of the major credit card association rules on surcharges that you should know:
- You must notify the card association & your merchant services provider at least 30 days in advance. Note: American Express only requires you to provide notice if you comply with all their rules.
- You must include the surcharge amount on receipts as a separate line item. This is an extension of the signage rule to increase customer awareness of the surcharge. The surcharge must also be listed in the network authorization request and settlement. Note: Once again, American Express is the only exception.
- You need a payment processing machine that prints surcharges on receipts. This is the obvious corollary to the previous rule, except it’s not very obvious. You need to ensure that your payment gateway or processing equipment is reprogrammed to accurately record the surcharges in accordance with the card network requirements.
- For Visa and Mastercard, you can apply brand-level surcharges (e.g., all Visa cards) or product-level surcharges (only certain lines of cards). However, you cannot do both.
The Consequences of Illegal Credit Card Surcharges
Credit card surcharges can be a valuable way for businesses to offset the fees associated with accepting credit card payments.
But it goes without saying that if your business is somehow out of compliance with charging credit card surcharges, you could face serious consequences.
Penalties can include fines, legal fees, and damage to your reputation. It's essential to ensure you follow all rules and regulations surrounding credit card surcharges.
Make More Money...and Keep More of it, Too
At the end of the day, most credit card processing fees are just too high. In industries where a 10–20% profit margin is expected and reasonable, a 2–3% processing fee is just another headache.
So if you live in one of the 48 states where credit card surcharges are legal, it’s in your best interest as a business owner to cover your processing fees with those surcharges. You’re literally setting your money on fire if you don’t.
And honestly? Most customers won’t notice (or care) whether they pay a surcharge or not. They’re already used to paying 2–3 different fees and taxes every time they get picked up by a ride-share or order takeout delivery.
But if you're still unsure whether or not your business can legally charge a credit card fee, be sure to do your own due diligence and consult with an attorney if necessary.
Or...you could just ask Nadapayments for help. We can set up your surcharge program, notify the credit card associations, and even get you the right processing equipment. All you need to do is start putting more of your hard-earned money back into your pocket—where it belongs.