The high cost of payment processing leaves many retailers asking themselves, “Is it legal to charge a credit card fee to customers?”

After all, you don’t want to start charging a credit card fee only to get slapped with fines and penalties of your own.

The good news for small business owners is that it is legal to charge fees on credit card purchases in most parts of the U.S. There’s no federal law against it. Each state can set its own guidelines, though, so you’ll want to make sure you follow the rules and regulations under state law to avoid running into issues.

Here’s everything you need to know about the legality of charging credit card fees in the U.S., and how to implement a surcharge program for your business.

Types of Credit Card Fees

Before you charge customers a fee for credit card payments, it’s important to know what type of fee is right for your business model. There are basically two types of credit card fees: surcharge fees and convenience fees.

The right type of fee for you will depend on the forms of payment you accept and which credit card networks you use.

Let’s take a look at how these two types of fees compare.

Convenience Fees

A convenience fee is applied when a customer makes a purchase using an alternative payment method or channel.

For example, if most of your sales take place in person, you could charge a convenience fee for purchases that are made over the phone. This involves more work for you but is more “convenient” for the customer, so they’re charged a fee for it.

These days, some “alternative” sales channels have become the go-to option. Buying tickets to the movies or a concert online is pretty common, so customers may complain about having to pay a convenience fee for it.

Convenience fees are legal, but each credit card brand — including Visa, Mastercard, and Discover — has its own set of policies that you’ll need to be aware of.

Surcharge Fees

Surcharge fees differ from convenience fees in that they pass on the processing cost from credit card purchases to the customer.

These usually max out at around 3.5% but may vary depending on the fees that your credit card processor charges.

The point of a surcharge fee isn’t to cover the cost associated with a specific payment channel — such as typing in the card number manually — so they’re the same regardless of whether a customer pays in person, online, or over the phone.

However, they only apply to purchases made with a credit card, not a debit card. You can’t charge a fee if a customer pays with a debit card — or cash, for that matter. That’s why you’ll often see gas stations advertise one price for credit card payments and a “cash discount” for paying with cash or a credit card.

Is It Legal to Charge a Credit Card Fee?

Is it legal to charge a credit card fee: A woman sits on her couch and makes a purchase with her credit card over the phone

You may have heard mixed reports about surcharge programs that leave you wondering, “Is it legal to charge a credit card fee after all?” That’s because laws around credit card fees have changed over time, so it can be tricky to keep track of all the regulations.

In fact, convenience fees and surcharge fees haven’t always been legal. According to the General Services Administration, federal regulations changed in 2013 as part of a legal settlement between credit card companies and retailers.

Currently, there’s no federal prohibition on credit card surcharges, but there are rules for surcharging that you’ll have to follow in most states.

Register With Card Brands

You’ll need to let the credit card networks you use, such as Visa and Mastercard, know that you plan to charge customers a credit card fee. If you use Nadapayments to implement your surcharge program, we’ll take care of this step for you!

Inform Customers

You can’t simply charge a credit card fee without letting the customer know. This usually means putting up signage near your point-of-sale system, but it also means integrating the fee into your credit card terminal or mobile app.

Your customers should be able to see the credit card price alongside the cash or debit card price, so they can decide which payment method they want to use.

Cap It at 4%

The surcharge fee should be used to cover processing costs, not to make a profit. It can’t be more than 4% of the purchase price. (Nadapayments charges 3.5%.)

Provide a Receipt

The surcharge fee must be shown as a separate line item on the customer’s receipt, so they can easily see what they were charged for.

Exempt Debit Card Purchases

You aren’t allowed to charge customers a fee to pay with a debit card, so you won’t be able to include a debit card fee in your surcharge program.

Fortunately, debit card processing is cheaper than credit card processing, so you won’t be hit with sky-high processing costs.

With Nadapayments, you can accept debit card transactions for 1% plus 25 cents, using the same POS system that you use to process credit card payments.

State Laws for Credit Card Surcharges

Once you’ve met these five rules for surcharging, are you good to go in any state? Not quite. Four U.S. states and territories don’t allow credit card surcharge fees at all:

  • Connecticut
  • Colorado
  • Massachusetts
  • Puerto Rico

Other states, such as California, don’t have a blanket ban on surcharge programs but prohibit practices that are “unfair or deceptive.” That’s why it’s so important to disclose your surcharge program to customers and apply it consistently.

Customers can make a complaint to the Attorney General’s office if you don’t run your surcharge program fairly.

If you run a business in multiple states, then you’re free to start a surcharge program in the states that allow it, but you’ll have to restrict it in those that don’t. You may be able to account for merchant fees in other ways, such as setting a minimum purchase amount for credit cards or offering a discount for paying in cash.

In addition to state-specific rules, you may also have to abide by policies set by your credit card processor, such as charging the same fee for all credit card networks.

Since the rules for surcharging are complex, you can use Nadapayments to set up your surcharge program and get everything taken care of for you.

Start a Surcharge Program With Nadapayments

A happy woman types her PIN into a credit card terminal

Nadapayments makes it easy to charge credit card fees by providing all of the tools you need to set up a surcharge program of your own.

You’ll get a credit card reader you can link to your point-of-sale system, plus signage to explain your surcharge fees to customers. Customers will see the surcharge displayed beside the cash price on your POS system and can choose to pay with a debit card if they want to avoid the cost of a credit card transaction.

This helps you keep customers informed of their choices and ensures that you meet the guidelines of your credit card issuers and state law.

Get started with Nadapayments today to set up a surcharge program and stop high credit card processing fees from eating into your profit margin!