What Is a Checkout Fee and When Is It Legal?

Checkout fees are additional charges applied to a transaction, typically at the point of payment. These fees represent an extra cost that consumers might encounter when purchasing goods or services.

Understanding Checkout Fees

Checkout fees are charges added by merchants or service providers to cover costs associated with processing payments. This is particularly true for electronic payment methods like credit cards. These fees help offset expenses from processing transactions, such as interchange fees charged by banks and card networks. These fees are distinct from the advertised price of the good or service itself, representing a separate line item at the point of sale. Businesses may use these fees to maintain their core pricing structure while recovering payment acceptance costs.

The cost of accepting electronic payments can be substantial for businesses, with merchant fees potentially eating into profit margins. These fees, which can include interchange fees, assessment fees, and payment processor fees, are often a percentage of the transaction value. Many businesses, especially smaller ones, may choose to pass these costs onto consumers rather than absorbing them entirely. This ensures merchants recoup expenses from offering diverse payment options.

Types of Common Checkout Fees

Consumers often encounter several distinct types of checkout fees, each applied under specific circumstances. Each type serves a particular purpose for the merchant, generally related to payment processing costs or the method of transaction.

Credit card surcharges

Credit card surcharges are fees applied when a consumer chooses to pay with a credit card. Merchants levy these to cover the processing costs from credit card companies and payment processors. These surcharges are directly linked to interchange fees, paid by a merchant to the credit card’s issuing bank. Surcharges typically range from 1.5% to 4% of the transaction value.

Convenience fees

Convenience fees are charges for using an alternative payment method or channel not standard for a business. For instance, a merchant that typically accepts cash might charge a convenience fee for online or telephone payments. Common scenarios include paying bills online, over the phone, or for services like movie tickets purchased remotely. These fees are intended to cover costs of offering non-standard payment options.

Processing fees

Processing fees, sometimes referred to as service fees, are general terms for additional charges applied to transactions. These often appear for online purchases and can encompass various underlying costs. They might include transaction fees from payment gateways, service charges for specific methods, or assessment fees from card networks. While “processing fee” and “service fee” are sometimes interchangeable, they reflect operational expenses of handling a transaction.

Legality and Disclosure Requirements

The regulatory framework governing checkout fees, particularly credit card surcharges, varies significantly across jurisdictions. Legality is not uniform; some states prohibit or restrict them. For instance, states like Connecticut, Maine, Massachusetts, and California have laws that explicitly prohibit or limit credit card surcharges. Other states may allow surcharging but impose conditions, such as percentage caps or clear disclosure requirements.

Major credit card networks, including Visa and Mastercard, have specific rules regarding surcharging, even where legal. These rules often cap surcharges at 3% to 4% of the transaction and stipulate they cannot exceed the merchant’s actual processing cost. Merchants must notify their acquirer and the card networks at least 30 days before implementing surcharges. Surcharges are limited to credit card transactions and cannot apply to debit or prepaid card purchases.

Transparency is a requirement for merchants charging checkout fees. Businesses must disclose these fees clearly and conspicuously to consumers before the transaction is completed. This includes visible signage at physical stores and prominent display on websites before checkout. The disclosure on receipts must also itemize the surcharge amount separately, indicating the merchant is imposing the charge and it does not exceed their cost of acceptance.

What Consumers Should Know

Consumers can take proactive steps to identify and manage checkout fees. Before finalizing a purchase, especially online, it is advisable to carefully review the transaction summary for additional line items such as “service fee,” “convenience fee,” or “surcharge.” Unexpected fees often appear at the very end of the checkout process, making it essential to scrutinize the final review screen. Being aware of these common fee labels can help consumers recognize them before committing to payment.

Merchants are generally required to provide clear disclosure of any checkout fees prior to the transaction. Look for signs posted at store entrances or near cash registers, or for prominent notices on websites and mobile applications before you proceed to payment. If a fee appears unclear or unexpected, asking the merchant about its purpose is a reasonable step. In telephone transactions, merchants must provide verbal notice of any surcharge before processing the payment.

In some situations, choosing an alternative payment method can help avoid certain fees. For example, some merchants may waive convenience fees if payment is made via cash, check, or Automated Clearing House (ACH) transfer instead of a credit card. While not always an option, inquiring about alternative payment methods that do not incur additional charges can lead to savings. Regularly reviewing bank and credit card statements can also help identify any unexpected or recurring fees.