Why Are Companies Charging to Use Credit Cards?

Consumers increasingly encounter additional charges when paying with a credit card. This practice is now a noticeable part of many transactions. Businesses implement these charges to offset specific costs incurred when accepting credit card payments. Understanding the various fees and regulations can help consumers navigate these transactions.

The Underlying Costs for Businesses

Businesses face various fees when accepting credit card payments, which represent a significant operational expense. These costs are primarily paid to credit card networks, issuing banks, and payment processors. Businesses paid over $160 billion in processing fees in 2022.

Interchange fees are often the largest expense, paid by the merchant’s bank to the cardholder’s bank for each transaction. These fees vary based on factors such as the type of card used, the transaction method, and the merchant’s industry. Premium or rewards credit cards generally carry higher interchange fees.

Beyond interchange, businesses also pay network fees directly to credit card networks like Visa and Mastercard for using their infrastructure. These are typically a small percentage of the transaction or a fixed per-transaction fee. Payment processors, which facilitate transactions, also charge their own markups and fees. These can include monthly service charges, per-transaction fees, and other costs for services like fraud protection.

How Merchants Recoup Costs: Surcharges and Convenience Fees

To mitigate the impact of credit card processing costs, merchants may pass on these expenses to consumers through surcharges or convenience fees. While both add to the consumer’s total payment, they are distinct in their application and regulatory treatment.

A surcharge is an additional fee applied when a customer uses a credit card, calculated as a percentage of the transaction amount. Its purpose is to directly offset the merchant’s cost of processing that credit card payment. Credit card network rules cap surcharges, with Visa limiting them to 3% and Mastercard to 4% of the transaction. Surcharges are prohibited on debit or prepaid card transactions.

A convenience fee is a charge for using an alternative payment channel or method. This fee is a fixed amount or a percentage of the transaction. Unlike surcharges, convenience fees are not solely tied to credit card usage and can apply to various electronic payments, provided a standard, no-fee payment option is available. Merchants must disclose these fees clearly before the transaction is finalized.

Legal Landscape and Consumer Protections

The legality and regulation of credit card surcharges and convenience fees vary significantly across different jurisdictions. While credit card network rules permit surcharging with specific limitations, state laws often impose additional restrictions or outright prohibitions. Consumers must be aware that the permissibility of these fees depends on their location.

Several states have laws that prohibit or heavily restrict credit card surcharges, including Connecticut, Maine, Massachusetts, and, as of July 1, 2024, California. Some states, like New York, allow surcharges but require the total price with the surcharge to be displayed clearly, effectively banning separate line-item surcharges. Other states allow surcharging but impose lower percentage caps than network rules, such as Colorado’s 2% limit, or mandate that the surcharge cannot exceed the merchant’s actual cost of acceptance.

Regardless of state-specific rules, clear and conspicuous disclosure of these fees is a universal requirement. Businesses must inform customers about any additional charges before the transaction is completed, whether through signage at the point of sale, verbal notification, or prominent display on websites. The surcharge amount should also appear as a separate line item on receipts. If consumers believe a charge is improper, not adequately disclosed, or violates state law, they can dispute the charge with the merchant, contact their credit card issuer, or report the issue to state consumer protection agencies or the Federal Trade Commission.