The short answer is yes—you can legally pass on credit card fees to customers. However, this is not as easy as it seems. Credit card fees are governed by regulations from card networks as well as federal and state laws, which make passing on credit card fees to customers available for one merchant but limited for another.
Often referred to as free credit card processing and zero-cost processing, passing on credit card fees to customers was heavily restricted until recently, when merchants began making their cases against the continued rise in transaction rates.
How to Legally Pass Credit Card Fees to Customers
There are two ways to pass on credit card fees: charging a convenience fee and applying surcharges. We discuss each method below:
Charging a Convenience Fee
A convenience fee is a fee imposed on service transactions made by phone or online with a credit card. The amount is usually fixed—such as service fees when buying tickets and paying bills—or it can be a certain percentage of the total amount as when paying your taxes online.
Where are convenience fees legal?
Adding a convenience fee is legal in all 50 US states although there are still state and card network regulations that need to be observed.
Regulations around convenience fees
Please note that, generally, convenience fees are allowed in all states, however, it is important to check with your local government for any new regulations around convenience fees.
Below are the general guidelines for convenience fees from card networks:
| Card Network | Business Type | Payment Type | Fee Type | Convenience Fee Disclosure |
|---|---|---|---|---|
| Visa | With physical and online store | Mail, Phone, Online transactions | Flat fee | Prior to transaction, No need to include on receipt |
| Mastercard | With physical and online store | In person, Mail, Phone, Online, Recurring transactions | Flat fee, percentage, or tiered based on transaction | Prior to transaction, No need to include on receipt |
| American Express | With physical and online store | In person, Mail, Phone, Online, Recurring transactions | Flat fee, percentage, or fixed based on transaction | Prior to transaction, No need to include on receipt |
| Discover | Allows convenience fee as long as it is in equal treatment with other credit card brands | |||
Applying Credit Card Surcharging
When credit card fees are passed to customers via surcharging, merchants are adding the payment processing cost directly to the cost of the product or service. This method can be used for both in-person and online transactions and requires some reprogramming of your point-of-sale (POS) system with your payment processor.
Where is credit card surcharging legal?
As of this writing, credit card surcharging is available in all but two states (Connecticut and Massachusetts), Washington D.C., and Puerto Rico. However, certain limitations are observed in some areas (California, Florida, Kansas, Maine, New York, Oklahoma, Texas, Utah).
Regulations around surcharging
Unlike convenience fees, surcharging is highly regulated by both card networks and state laws.
From Card Network:
Visa refers to a credit card surcharge as a payment card surcharge or checkout fee.
It allows merchants to add cc surcharges to transactions, though merchants must disclose the fee ahead of time, at your store entrance and at the point of sale. It also needs to be listed on your receipts. You can choose to add surcharges to all Visa cards (brand level) or specific types of Visa cards (product level), but not both. You also can’t add surcharges to debit or prepaid card transactions.
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As of April 15, 2023, merchants no longer have to notify Visa in writing of their intent to impose surcharges. The authorization and settlement will automatically serve as registration. You’ll still need to notify your acquiring bank and payment processor at least 30 days prior to implementing the surcharge.
Mastercard requires merchants to notify it with this webform and the merchant’s acquiring bank 30 days prior to implementing the credit card surcharge. Like Visa, Mastercard requires full disclosure and transparency to all customers before adding a surcharge (at the point of entry and point of sale) and allows merchants to choose whether to apply the surcharge at the brand or the product level.
American Express charges some of the highest interchange rates of all credit card companies. And unfortunately, it doesn’t allow credit card surcharging as a way for merchants to make up for it.
With Discover, merchants will need to go through a payment processor or acquirer to notify their intention of imposing credit card surcharges. Note that Discover allows merchants surcharging so long as competitor card brands are surcharged as well.
Surcharging Laws by State:
Free Credit Card Processing: Types, Legality & Solutions
Alabama
Surcharge not prohibited. “A legal licensed lending institution, a vendor making credit sales, any financial institution operating in Alabama or any individual may, if provided in the contract, charge and collect at the time of making a loan or credit sale, on each contract of loan or credit sale, an interest surcharge of not more than six percent of the part of the amount financed, which is not in excess of two thousand dollars ($2,000).” Source
Alaska
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Arizona
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Arkansas
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
California
Surcharge prohibited by law but limited. The US Court of Appeals, 9th Circuit declares law prohibiting credit card surcharges is a violation of merchants’ freedom of speech under the First Amendment
Colorado
Connecticut
Surcharge prohibited. “No seller may impose a surcharge on a buyer who elects to use any method of payment, including, but not limited to, cash, check, credit card or electronic means, in any sales transaction.” Source
Delaware
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
District of Columbia
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Florida
Surcharge prohibited by law but limited. The US Court of Appeals, 11th Circuit has reversed the district court ruling after finding that Florida’s law against surcharging violates businesses’ commercial speech rights, and is therefore unconstitutional. Source
Georgia
Surcharge not prohibited. “In addition to any other charges, interest, and fees permitted by law and subject to the terms and conditions of the debit card or credit card acceptance agreement, a lender or merchant may collect a nonrefundable convenience fee from any person electing to utilize an option of payment by electronic means.” Source
Hawaii
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Idaho
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Illinois
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Indiana
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Iowa
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Kansas
Surcharge prohibited by law but limited. “The US District Court of Kansas has declared that the state’s no-surcharge law is unconstitutional as it regulated speech and violated a payment processing company’s commercial speech rights.” Source
Kentucky
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Louisiana
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Maine
Surcharge limited to government agencies. “A seller in a sales transaction may not impose a surcharge on a cardholder who elects to use a credit card or debit card in lieu of payment by cash, check or similar means.” Source
Maryland
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Massachusetts
Surcharge prohibited. “No seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check or similar means.” Source
Michigan
Surcharge not prohibited. “Although surcharging is now permitted by credit card merchant contracts, retailers must continue to abide by state laws that prohibit or restrict credit card surcharges. Michigan does not have any such law.“ Source
Minnesota
Surcharge not prohibited. “A seller of goods or services may impose a surcharge on a purchaser who elects to use a credit card in lieu of payment by cash, check, or similar means.” Source
Mississippi
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Missouri
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Montana
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Nebraska
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Nevada
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
New Hampshire
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
New Jersey
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
New Mexico
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
New York
North Carolina
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
North Dakota
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Ohio
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Oklahoma
Surcharge prohibited by law but limited. It is the Attorney General’s opinion that Oklahoma’s ban on surcharges for purchases using credit cards or debit cards does not “facially” violate the First Amendment unless interpreted by plain definition of surcharge as applied to the pricing schemes discussed in Italian Colors Restaurant v. Becerra, 878 F.3d 1165 (9th Cir. 2018) and Rowell v. Paxton, 336 F. SupP.3d 724 (W.D. Tex. 2018). Source
Oregon
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Pennsylvania
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Rhode Island
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
South Carolina
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
South Dakota
Surcharge not prohibited. “In 2013, a court settlement between retailers and the credit card industry resulted in merchants being able to pass their payment processing costs to consumers who pay with a credit card. In South Dakota, a merchant who chooses to exercise this surcharge, sometimes referred to as a ‘checkout fee,’ could increase your credit card purchase amount by as much as 4% (the maximum allowed).” Source
Tennessee
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Texas
Surcharge prohibited by law but limited. “In a sale of goods or services, a seller may not impose a surcharge on a buyer who uses a credit card for an extension of credit instead of cash, a check, or a similar means of payment.” Source
Utah
Surcharge is not prohibited by law but limited. “A consumer cannot meaningfully authorize the addition of a fee or surcharge unless the business first notifies the consumer in a clear and conspicuous manner about the fee or surcharge. Notification to a consumer after-the-fact, such as adding a line item on a receipt the consumer receives after payment, is not sufficient.” Source
Vermont
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Virginia
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Washington
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
West Virginia
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Wisconsin
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Wyoming
Surcharge not prohibited. No state law has been enacted that prohibits surcharging.
Learn more about credit card surcharging.
Pros & Cons of Passing Credit Card Fees to Customers
Some of the trade-offs for passing on credit card charges to customers are:
| PROS | CONS |
|---|---|
| Covers some of the payment processing cost | Does not account for incidental fees |
| Minimizes chargebacks | Potential lost sales from customers paying with credit cards |
| Improves cash flow | Additional compliance requirements |
Applying surcharging and convenience fees help merchants mitigate ever-increasing card network interchange rates. It frees up more of the business operating funds for activities that improve sales. Additionally, customers who may want to avoid paying surcharge and convenience fees opt for cash or debit payments, which can help merchants reduce the risk of chargebacks.
On the other hand, not all expenses related to credit card payment processing can be covered by the 2%–4% surcharging and convenience fees. Merchants will still have to pay for expenses such as verifications, PCI compliance, and any monthly fees. There is also a huge risk of losing customers who prefer to pay with their credit card, not to mention the compliance requirements involved.
Zero-cost Processing Tips & Best Practices
Sustainability is a key consideration for merchants who plan on passing on credit card processing fees to customers. So the question of “should you?” instead of “can you?” comes into play. The following best practices will serve as a guide and also help you decide if zero-cost processing is right for your business.
Check With Your Local Government for Regulations
If your state does allow merchants to legally pass on credit card fees to customers, make sure to contact your local government office for more information particularly applicable to your business. Not only will this ensure that your information is up to date, it will likely make the entire compliance process easier to manage.
Know Your Customers
Understanding how your customers pay can help you decide whether or not you need (or should have) a free credit card processing program. If most of your clients pay with alternative methods other than credit cards, then installing and paying for surcharging or convenience fee programs is not cost-effective.
On the other hand, if most of your clients pay with a credit card, note which card brands are primarily used and check card network rules, such as how to notify customers of your surcharging program, before implementing either surcharging or convenience fee.
Consider Your Competitors
One big merchant concern with charging credit card fees to customers is the risk of losing sales to competitors. To avoid this, consider your competitors before signing up for a zero-cost processing program.
Check your competitors within your industry and even within the area of your place of business whether or not they apply a surcharge or convenience fee. If yes, then you should be less concerned about losing customers.
Work With A Payment Processor
This is particularly important if you intend on signing up for a surcharging program. While you have the option to set up surcharging on your own, the risk of non-compliance that can cost you your merchant account and ultimately your business is very high. To ensure full compliance, work with a payment processor that can help you manage card network rules and observe state laws while setting up and implementing a surcharging program.
Frequently Asked Questions (FAQs)
These are some of the questions we commonly encounter about passing on credit card fees to customers.
Should small businesses pass on their credit card processing fees to customers?
This depends. The biggest question is if it would do your business more harm (lost sales) or good (savings on payment processing cost) in the long run. For instance, customers are more understanding of small businesses and startups that apply a surcharge for card payments, but if your competitors within the area do not add a surcharge, you may still lose sales.
How much can I charge customers for convenience and surcharging fees?
The average range of convenience and surcharge fees is from 2% to 4% per transaction. It’s important to check card networks and state laws for any changes.
How do I notify customers of credit card surcharges?
Based on card network and state laws, customers should be notified of a credit card surcharge before a payment is processed. Merchants are also legally required to post signages at the entrance and at the checkout area about their surcharging program.
Bottom Line
The issue of passing on credit card fees to customers continues to be a highly debated topic. Merchants who are trying to keep their business sustainable amidst the increasing interchange rates are in favor of this method, but understandably, customers view this as unfair practice.
So is it legal to charge a credit card fee to customers? Yes. But the real question is “should you?” Passing on credit card fees to customers isn’t for everyone and merchants should consider asking the help of experts such as payment processors to better understand if this strategy is best for their business. Learn more about free credit card processing.
