Is it Legal to Charge Customers a Credit Card Processing Fee?

Credit card processing fees are currently legal in most states. When you use your credit card to pay for a purchase, the merchant may add a credit card surcharge or convenience fee to your total. They can also require that you spend a certain amount of money — called a minimum purchase — in order to use your card. These tactics help businesses offset the credit card processing fees that credit card payment processors, networks and issuers charge them every time they swipe a card.

Credit card processing fees

There are three types of credit card fees and restrictions you should know about:

1. Surcharges
2. Convenience fees
3. Minimum purchase requirements

We’ll show you how much additional charges might cost you so you can decide when to use your credit card, or when you should opt for debit or cash.

What is a credit card surcharge?

Credit card surcharges are optional fees that merchants charge customers who use a credit card to pay at checkout. Surcharges are legal unless restricted by state law and are limited to 4% of the total transaction. Businesses that add surcharges are required to follow protocols to ensure that consumers are aware of the charges before they pay. The surcharge regulations outlined below only apply within the U.S.

Surcharge regulations

Under Visa and Mastercard, retailers are required to display a notice of the surcharge at the point of sale — both in-store and online. The consumer’s receipt must also include the surcharge.

Merchants can’t impose surcharges on debit cards or prepaid debit transactions per Visa and Mastercard.

If merchants add a surcharge, they must decide to add it at the brand or product level — but not both.

• A brand-level surcharge adds the same fee to all credit card transactions from the same payment network, such as Visa or Mastercard.
• A product-level surcharge applies to a particular type of Visa or Mastercard, such as Visa Signature or World Elite Mastercard.

The maximum surcharge is 4% of the credit card transaction.

States that prohibit or restrict credit card surcharges

If you’re wondering if credit card surcharges are legal in your state, the answer is probably yes. The only states that currently prohibit surcharges are Connecticut, Massachusetts, Maine and Oklahoma. A recent ruling limits merchants in Colorado to a maximum surcharge of 2%.

What is a convenience fee?

Credit card convenience fees are optional flat fees that merchants can charge in some instances. Convenience fee rules vary by card network:

• For Visa cards, a merchant can charge a convenience fee when they offer an alternative payment method — one that’s different from how they usually conduct business. For example, a museum can’t charge a convenience fee at the register if that’s how most people buy their tickets. However, if the museum adds the option to buy tickets online with a Visa card, it may charge a convenience fee for those purchases.
• Other credit card networks like Mastercard have rules that only allow certain kinds of merchants, like official government agencies and select companies, to charge convenience fees.

Convenience fee policies

The table below shows the policies for convenience fees and how they vary by card network:

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Can merchants require a minimum purchase?

Minimum purchase amounts are thresholds merchants can impose on credit card transactions. While not technically required, merchants who decide to add a minimum purchase requirement are encouraged to disclose this through proper signage and verbal communication to the cardholder.

The minimum purchase amount must be under $10.

Merchants cannot add a maximum transaction amount unless they’re a federal agency or higher education institution.

Processing fees: Why some stores don’t take credit cards

Some merchants may choose not to accept credit cards to avoid paying processing fees. Depending on the card network, processing fees average around 1% to 3% of each transaction. Since these fees add up — especially for small businesses — they may decide not to accept credit cards altogether.

You’ll sometimes find that merchants don’t accept specific networks, such as Discover and American Express, as they tend to charge higher processing fees.

Who pays credit card transaction fees?

Businesses are responsible for paying credit card transaction fees every time they swipe your card. Credit card surcharges, convenience fees and minimum purchase requirements are all strategies merchants can use to offset the cost of pricey processing fees. They are legal in most states, but businesses must:

• Disclose any surcharges at the point of sale and on the receipt
• Apply surcharges only to credit card transactions
• Limit the minimum payment to $10 or less

Using a credit card has its advantages – your card can help you build your credit score and earn valuable credit card rewards. When you notice a surcharge or convenience fee for using your credit card, weigh the rewards you’ll earn on that particular purchase against the fees for using your card. If the surcharge or convenience fee costs you more than you’ll get back in rewards, consider using an alternate payment method or purchasing from a different merchant.

Should businesses impose credit card surcharges?

If you’re a business owner in a state where credit card surcharges are legal, consider the pros and cons before imposing them. Charging convenience fees or surcharges is a simple way to compensate for high credit card merchant fees, but it could lead to the loss of customers.

Consumers generally frown upon extra fees. According to a recent LendingTree study, 57% of cardholders think that fees for credit card processing should be illegal. If you’re one of the only businesses in your local area that charges surcharges or convenience fees, weigh that additional profit against the potential profit loss of turning away some customers.