What Is a Credit Card Surcharge and When Can It Be Charged?
Demystify credit card surcharges. Understand their purpose, when they're permitted, and how they differ from other transaction costs.
A credit card surcharge is an additional fee some businesses add to a transaction when a customer chooses to pay with a credit card. This practice allows merchants to recover some of the costs associated with processing credit card payments. It is a mechanism for businesses to manage their operational expenses related to offering credit card payment options.
Defining Credit Card Surcharges
A credit card surcharge is a percentage-based fee that a merchant adds to a transaction to cover the costs they incur from credit card processing. These processing costs typically include interchange fees, which go to the cardholder’s bank, and assessment fees, which are paid to the card networks for using their infrastructure. Businesses also face fees from payment processors for transaction authorization and reporting services.
Surcharges help businesses offset these processing expenses, which can be significant, particularly for those with thin profit margins. The amount charged is usually designed to recover these costs rather than generate additional profit. It is generally capped to ensure it reflects the actual cost of card acceptance.
Rules for Imposing Surcharges
The legality of imposing credit card surcharges varies across the United States. While most states permit surcharging, some jurisdictions, such as Connecticut and Massachusetts, prohibit them entirely. Other states may have specific restrictions, such as lower percentage caps or detailed disclosure requirements. Businesses must comply with both state laws and the rules set by major credit card networks like Visa and Mastercard.
For states where surcharges are allowed, businesses must adhere to strict disclosure requirements. This includes clear notification at the point of entry and the point of sale, informing customers of the surcharge before they complete their transaction. The surcharge amount must also be clearly listed as a separate line item on the receipt. Generally, the surcharge cannot exceed the merchant’s actual cost of acceptance or a specified percentage, often around 3% or 4%, depending on the card network. Surcharges apply only to credit card transactions and are prohibited for debit or prepaid card payments, even if a debit card is processed as credit.
Surcharges vs. Other Transaction Fees
Credit card surcharges are often confused with other fees, but they serve distinct purposes and operate under different regulations. A key distinction is between a surcharge and a convenience fee. A convenience fee is typically charged for the privilege of using an alternative payment channel, such as paying a bill online or over the phone, when that method is not the business’s standard payment option. Unlike surcharges, convenience fees are often a fixed amount rather than a percentage of the transaction, and they are not directly tied to covering the merchant’s credit card processing costs for that specific transaction.
Another term that can cause confusion is “processing fees.” While a credit card surcharge is designed to cover specific credit card processing costs, the term “processing fee” can be broader, encompassing various administrative expenses related to a transaction, not solely credit card acceptance.
Minimum purchase requirements are also distinct from surcharges. These are conditions set by merchants, allowing them to require a minimum amount, typically up to $10, to be spent when using a credit card for payment. This practice is permitted by card networks and federal law to help businesses manage the processing costs of small transactions, which might otherwise be unprofitable. Unlike surcharges, minimum purchase requirements are not an additional fee added to the transaction value.