Why Are Restaurants Charging Credit Card Fees?

Restaurants across the country are increasingly adding an extra fee to transactions when customers choose to pay with a credit card. This practice has become more common as businesses seek to manage their operational expenses. This article explains these charges, their definition, and governing regulations.

The Nature of Credit Card Surcharges

A credit card surcharge is an additional fee a business adds to a customer’s bill when payment is made using a credit card. This charge helps the merchant recover costs associated with processing credit card transactions. It typically appears as a separate line item on the receipt, often calculated as a percentage of the total transaction amount.

Surcharges differ from tips, which are voluntary, or service charges, which might be mandatory for large parties. Surcharges are directly tied to the payment method. They also differ from convenience fees, which apply when a customer chooses an alternative payment channel, such as paying a bill online or over the phone. Surcharges are specifically levied on credit card payments to offset processing costs.

The Costs Driving Surcharges

Restaurants implement credit card surcharges primarily to offset the substantial costs associated with processing electronic payments. Each credit card transaction involves several types of fees paid by the merchant to various entities in the payment ecosystem. These cumulative costs can significantly impact a restaurant’s profit margins.

The largest component of these processing costs is the interchange fee, paid to the bank that issued the customer’s credit card. These fees are set by the card networks and can range from approximately 1.5% to 3.5% of the transaction value. Another part of the expense includes assessment fees, paid directly to the credit card networks like Visa or Mastercard for using their payment infrastructure. These are generally a smaller percentage.

Restaurants also pay fees to their payment processor, the third-party company that handles the transaction. These processor fees can vary widely based on the service agreement and might include monthly fees or per-transaction charges. Credit card processing fees can range between 1.5% and 3.5% of each transaction, making them a significant expense. Passing a portion of these costs to the consumer through a surcharge becomes a financial consideration.

Regulations and Card Network Rules

The ability of restaurants to impose credit card surcharges is subject to state laws and rules set by major credit card networks. While surcharging is permissible in many parts of the United States, some states maintain prohibitions or specific conditions for their implementation.

Credit card networks like Visa, Mastercard, and Discover have established specific rules that merchants must follow. Clear disclosure to the consumer is a universal requirement; notice of the surcharge must be prominently displayed at the store’s entry, at the point of sale, and explicitly shown as a separate line item on the receipt.

Networks typically cap the maximum percentage a merchant can charge, often around 3% or 4% of the transaction amount. Surcharges can only be applied to credit card transactions, not to debit or prepaid card payments. Merchants are also typically required to notify their card processor and the card networks at least 30 days before implementing a surcharge.

Navigating Credit Card Surcharges as a Consumer

Consumers have several ways to navigate credit card surcharges when dining out. One direct approach to avoid the fee is to pay using a method that does not incur a surcharge, such as cash or a debit card. Restaurants are generally not permitted to apply surcharges to debit card transactions.

Before making a purchase, consumers should look for clear disclosures regarding surcharges. Restaurants are typically required to post notices at their entrance and at the point of sale, and the surcharge should be itemized on the bill. Checking the menu or asking staff about payment policies can also provide clarity.

If a surcharge has been applied improperly or without adequate disclosure, inquire with the restaurant directly. If the issue remains unresolved, consumers may contact their credit card issuer or a consumer protection agency for further guidance.