A credit card surcharge (or cc surcharge) is an extra fee applied when a customer chooses to pay via credit card instead of cash or check. Merchants have to pay payment processing fees to accept credit cards, and surcharging is when a business passes that fee on to the customer.
Surcharging fees average around 2%–3% of the total purchase price, which aligns with typical credit card processing fees.
Are credit card surcharges the same as cash discounting?
Cash discounting is when you offer a lower price to customers who pay with cash—the opposite of surcharging and fees. However, they both have the same end result—lowering credit card fees for merchants by either passing them along to customers or baking them into the standard pricing.
Before deciding to set up credit card surcharging for your business, note that there are many state and local laws to comply with and policies set by card issuers like Visa.
Where Is Credit Card Surcharging Legal?
The most common question around credit card surcharging is whether or not it’s allowed. The answer is usually—but not always—yes. As of this writing, surcharging is still prohibited in the states of Connecticut and Massachusetts, as well as in Puerto Rico. It is legal everywhere else, with limitations in some states where the anti-surcharging law is still in place but not fully enforced.
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State-by-State Surcharging Laws & Limits
California: After the law was challenged by several businesses, surcharging is now legal in the state, provided merchants ensure that they do not mislead customers by falsely advertising a lower price than they actually charge or hide any differences between credit card, debit card, and cash prices.
Connecticut: The state continues to prohibit credit card surcharge as a payment method as an unfair or deceptive trade practice and comes with a fine of $500 per violation. Cash discounting is allowed.
Florida: Florida follows California, after four small businesses filed a suit against the cease and desist order from the Florida Attorney General over surcharging. The US Court of Appeals, 11th Circuit has reversed the district court ruling citing that Florida’s law against surcharging violates businesses’ commercial speech rights and is therefore unconstitutional.
Kansas: A 2012 Kansas Legislature Statute specifically prohibits credit card surcharging. However, in 2021, a Kansas Federal court ruled in favor of small businesses, citing that the state’s no-surcharge law is unconstitutional as it regulated speech and violated a payment processing company’s commercial speech rights.
Maine: Surcharging is only allowed for government agencies, provided that fees are properly disclosed prior to payment. Regular merchants are prohibited from imposing surcharge fees. It’s also required to display both the cost of paying in cash and credit cards (with surcharging).
Massachusetts: Surcharging is still prohibited under Title XX, Chapter 140D, Section 28A of the General Laws of the Commonwealth of Massachusetts.
New York: Surcharging is not prohibited by law as long as merchants state the policy or price clearly and in advance and do not force consumers to figure out if they are paying for surcharge. As with the State of Maine, merchants are also required to display both the cost of paying in cash and credit cards (with surcharging).
Oklahoma: Surcharging laws still exist but similar to California and Florida, courts have successfully ruled in favor of businesses wanting to impose surcharges, provided that merchants refrain from falsely advertising lower fees or hiding surcharge fees from the customer at the point of sale.
Texas: Texas follows Maine in limiting the use of surcharging to government agencies with the addition of private schools. The civil penalty costs up to $500 per violation.
Utah: Surcharging is allowed, provided the business first notifies the consumer clearly about the surcharge prior to making a payment. “Notification to a consumer after-the-fact, such as adding a line item on a receipt the consumer receives after payment, is not sufficient.”
How to Implement Credit Card Surcharging
Did you know?
A total of 23.7% (nearly one out of four) of transactions in local retailers and restaurants included a credit card surcharging fee.
The following guidelines should be observed in all states where credit card surcharging is legal:
- You must notify the credit card network in writing of your intent to impose surcharges. Payment processors that support surcharging can do this on your behalf. Note, however, that American Express does not allow surcharging at all.
- Inform your customers prior to completing a purchase that you are imposing surcharge fees by displaying a visible sign at the entrance and at the counter (for brick-and-mortar shops), or at the first page and checkout page (for ecommerce websites).
- Provide your customers the opportunity to pay by other methods prior to charging their credit card. Merchants in states that allow surcharging with limitations observe this to promote transparency.
- Create a separate line item in the receipt/ invoice for surcharge fees.
- Do not impose surcharge fees on any payment method other than a credit card.
- Surcharge fees should never be higher than your credit card processing fees. This is typically 3%, except in the State of Colorado, where surcharging is maxed at 2%.
- Major credit card networks cap surcharge fees at 4% for all card brands except for Visa that charges 3% for US merchants (effective as of April 2023) and American Express (that prohibits surcharging).
The overall theme of credit card surcharging best practices is transparency and providing customers an option to opt for alternative payment methods.
The latest Pymnts research on consumer’s perception of surcharging reveals that up to 40% of retail and restaurant consumers in the US will be on the lookout for competing businesses that do not impose surcharge fees.
Credit Card Surcharging Policies by Card Network
Credit Card Surcharging Frequently Asked Questions (FAQs)
Surcharging is a means for merchants to lower their monthly cost of accepting credit card payments by passing on to customers part of their credit card processing fees in the form of a surcharge.
No. A convenience fee is an additional charge that the customer must pay for choosing to use a payment method that doesn’t match the merchant’s preferred method. If a merchant prefers credit card payments, for example, they might add a convenience fee for cash, check, or over-the-phone payments.
No. A service fee is a type of convenience fee that only applies to merchants with certain merchant category codes (MCCs) in education and government. While Visa specifically differentiates the service fee from the convenience fee, American Express and Mastercard put it under their convenience fee programs.
Cash discounting is the opposite of surcharging and fees. It allows merchants to encourage customers to complete their transactions with cash by offering a discount, thereby avoiding the cost of accepting credit card payments.
To figure out what surcharge rate is best for your business, find out your current fees from your merchant account billing statements and use your average transaction fee as a baseline for your surcharge. So, if your average transaction fee is currently 3%, then consider using 3% as your surcharge rate.
The pros of credit card surcharging are (1) it lowers your credit card processing fees by passing them in part to your customer, and (2) it promotes other payment methods such as cash, mobile wallet, check, gift card, or ACH (via invoice).
Meanwhile, credit card surcharging can also harm the customer experience with unexpected fees at checkout that can sour the customer’s interaction with your brand or lead to lost sales.
Bottom Line
There are many reasons you might consider adding a credit card surcharge. Processing fees eat into your profits, and there’s really no such thing as free credit card processing, so those fees are a necessary evil.
A cc surcharge can be a great way to lower your credit card processing rates. However, it’s important to keep in mind that shoppers are increasingly going cashless. When you can provide a multitude of shopper-friendly payment options, you’ll have happy customers who will hopefully sing your praises and come back for future purchases.
