What Is a Credit Card Surcharge and How Does It Work?
Navigate credit card surcharges. Discover how these transaction fees are applied, their legal implications, and what consumers should know.
A credit card surcharge is an additional fee a business may add to a transaction when a customer pays with a credit card. This fee is typically a percentage of the total purchase amount. Businesses implement surcharges to recover costs they incur when processing credit card payments. This helps merchants offset expenses.
Reasons for Surcharges
Businesses face several types of fees when accepting credit card payments. These include interchange, assessment, and payment processor fees.
Interchange fees represent the largest portion of credit card processing costs, ranging from 1% to 3% of the transaction value. Paid by the merchant’s bank to the cardholder’s bank. Assessment fees, also known as network fees, are paid directly to credit card networks like Visa or Mastercard for routing transactions. Around 0.15% to 0.25% of the purchase amount.
Payment processor fees are charged by the company facilitating the transaction. These fees can be a percentage of each transaction, a flat fee per transaction, or monthly charges. Collectively, these processing fees average between 1.70% and 2.5% of the total transaction amount.
How Surcharges Are Applied
A credit card surcharge is calculated as a percentage of the transaction’s value and added to the customer’s total bill. This aims to directly cover a portion of the merchant’s processing costs for that specific transaction.
Merchants must clearly disclose the surcharge to customers before the transaction. This involves prominent signage at the business entrance and point of sale (e.g., cash register or payment screen). The surcharge amount must also be itemized as a separate line item on the customer’s receipt.
Surcharges apply only to credit card transactions. They are not permitted on debit or prepaid card transactions, even if a debit card is processed through a credit card network without a PIN.
Legal and Card Network Requirements
Credit card surcharge legality varies across the United States. Federal law permits surcharging, but state laws and credit card network rules impose restrictions. Some states prohibit surcharges; others allow them with specific conditions.
Major credit card networks (Visa, Mastercard, Discover, American Express) have established surcharge rules. Rules mandate the surcharge cannot exceed the merchant’s actual cost of acceptance. A cap on the maximum percentage is common; for instance, Visa’s surcharge cap is 3% of the transaction amount. Some states may impose lower caps, such as 2%.
Merchants must notify the relevant card network and payment processor at least 30 days before implementing a surcharge. If surcharging, the fee must apply equally to all credit cards within a network. Compliance with state laws and card network rules is important, as non-compliance can lead to penalties like fines or revocation of processing privileges.
Consumer Considerations
Consumers should look for clear surcharge notice before a transaction, including prominent signage and an itemized receipt. This ensures transparency regarding the additional fee.
Surcharges are typically a percentage of the total purchase, capped at a specific percentage (e.g., 3% or 4%) or the merchant’s actual processing cost. If a surcharge seems improper (e.g., exceeding legal limits or applied to a debit card), consumers can inquire with the merchant. If unresolved, contact the relevant credit card network or state consumer protection agencies.
To avoid surcharges, consumers have alternative payment options: debit card, cash, or check. Some businesses may offer a discount for cash payments.