Are Credit Card Surcharges Legal?

Quick Answer

A credit card surcharge is an additional fee the merchants can generally charge to help them cover the cost of credit card processing.

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In most states, companies can legally add a surcharge to your bill if you pay with a credit card. The fee might be a certain percentage on top of the purchase amount, which the companies can use to cover their credit card processing costs. If companies want to tack on this fee, though, they need to comply with various state and federal laws and the credit card networks' rules.

What Are Credit Card Surcharges?

A credit card surcharge is a fee that merchants can charge to cover their credit card payment processing costs. Surcharges are a percentage of the purchase amount and are generally added to your total bill.

For example, if you're buying an item for $100 and there's a 3% surcharge, you'll have to pay $103 if you pay with a credit card. However, the surcharge won't apply if you pay with cash, check, a debit card or prepaid card—these surcharges are only allowed for credit card purchases.

The specific surcharge amount could depend on the business, its fees and its arrangement with the credit card networks (Visa, Mastercard, Discover and American Express).

Merchants may need to give the credit card network at least a 30-day notice before adding a surcharge to their sales. With Visa and Mastercard, merchants have to choose whether the surcharge will be on the brand or product level; for example, one fee for all Visa cards, or a different fee depending on whether the customer uses a Visa Traditional or Visa Signature card.

The surcharge amount could then depend on the average processing fees that the merchant pays for these purchases. However, surcharges are capped at 4% even if the merchant's processing costs are higher.

Are Credit Card Surcharges Legal?

Credit card surcharges are generally legal, but some states have bans or restrictions:

  • Connecticut bans businesses from adding a surcharge if customers choose one type of payment over another.
  • Colorado banned credit card surcharges until July 1, 2022. It now caps credit card surcharges at the higher of the merchant's costs or 2%.
  • Maine, Massachusetts and Oklahoma ban credit card surcharges.
  • New York allows credit card surcharges, but companies have to advertise the total price (including the surcharge) for their products or services.

The legal landscape is somewhat in flux. Companies and trade associations sometimes file lawsuits to try and remove state-level bans on credit card surcharges, which would allow them to pass on the expense to consumers. Some of these suits have been successful, and there are states which may still have bans on the books, but the laws are no longer enforceable.

Even when surcharges are allowed, businesses can't surprise you by adding a credit card surcharge without any warning. They may have to put up notices at the store's entrances and checkout—or before the final checkout page if you're shopping online. The surcharge may also need to be added as a separate line item to your online cart and to your physical or digital receipt. If you return an item, the merchant may need to refund the surcharge.

Additionally, while credit card surcharge laws may vary by state, the federal Durbin amendment of the Dodd-Frank Act makes it legal for companies across the country to offer a discount to customers who pay with cash.

Credit Card Surcharge vs. Convenience Fee

A convenience fee is an additional fee that some merchants charge when you try to pay with a nonstandard payment method. For example, a movie theater may charge you a convenience fee if you want to buy tickets online because it usually sells tickets in person.

Merchants can charge convenience fees on purchases made with credit cards and other types of payment. Unlike credit card surcharges, the fee amount isn't based on the merchant's credit card processing costs—convenience fees may be a few dollars or over $15 per purchase.

As with credit card surcharges, the rules and laws can vary depending on the credit card network and local or state laws. For instance, a credit card network may only allow certain types of organizations, such as government agencies and educational institutions, to charge a convenience fee on their credit card transitions. And, even then, organizations might not be allowed to charge both convenience fees and credit card surcharges.

What to Do if You Incur an Illegal Credit Card Surcharge

If a merchant adds an illegal credit card surcharge to your purchase, you can report the merchant to your state's attorney general's office. The AG's office may reach out to the merchant to inform them that the fee isn't legal, or explain what they need to do to legally add a surcharge to credit card transactions. Repeated violations may result in the state taking action against the company.

In some cases, a merchant might not be breaking the law, but it could be breaking the card network's rules. If you want to report the merchant, you may be able to reach out directly to the card network to report the violation.

Monitor Your Purchases

Keeping an eye on your credit card purchases and receipts can be an important part of managing your finances. Pay close attention to credit card surcharges and convenience fees on recurring expenses, such as utility bills, as even a small fee can add up over time. You may be able to avoid the fee and save money by using an alternative payment type.