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You’re paying at the counter with your credit card. The merchant says, “Credit card transactions come with an extra charge.” What’s that all about? Depending on the reason, this extra charge could be a service fee or a surcharge. Though it’s annoying and can add on to the cost of your purchase, there’s a reason merchants add it: to cover credit or debit card processing costs.
Let’s take a look at the difference between service fees and surcharges below, plus find out if and when merchants can charge them.
Is it legal to charge customers for credit card fees in Canada?
Yes, as of October 6, 2022, it is legal to charge customers for credit card fees in Canada. Merchants can now charge customers to cover the credit card fees that card issuers, like Visa and Mastercard, charge merchants to process purchases.
What are credit card surcharge fees?
Credit card surcharge fees are an extra cost that credit car companies, like Visa and Mastercard, charge merchants every time they process a credit card payment. These fees can run anywhere from 1% to 3%. In the past, merchants absorbed that cost as an extra business expense. However, as a result of a recent class action lawsuit against Visa, Mastercard and several banks, merchants can now directly charge customers that surcharge fee, so they no longer have to soak up the cost themselves.
How do credit card surcharge fees work in Canada?
There are certain restrictions on how Canadian merchants can charge credit fees to customers. As of now, merchants must follow these guidelines when charging credit card surcharges fees in Canada:
The credit card surcharge must be cannot be higher than 2.4%
Merchants cannot charge surcharge fees in addition to service or convenience fees
Merchants cannot charge more for a surcharge fee than it costs them to accept the card
Additionally, merchants must clearly show that they are charging a credit card surcharge fee at the point of sale, in store, online, at the entrance of physical stores and on every receipt
Can merchants charge different surcharge fees for different cards?
Merchants in Canada can choose to set surcharge fees based either on the credit card’s brand or on the type of card (e.g. standard vs. premium card), but they can’t charge different fees based on brand and card type.
That means that a store could choose to charge a different surcharge fee for all Visa cards compared to all Mastercard cards. The other option is for a store to charge a different surcharge fee for all premium cards compared to standard cards, regardless of the credit card company the card comes from.
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Frequently asked questions about credit card surcharge fees
No. For example, Mastercard does not allow merchants to charge surcharge surcharge fees on Debit Mastercard or Mastercard prepaid cards.
Before an eligible merchant can charge you with a service fee, they will need to inform you of the charge. If you're shopping online with an international retailer or using your credit card overseas, this rule may not apply. Monitor your credit card statement regularly. If you are wrongly charged, file a dispute with your card provider.
Yes, merchants are allowed to add a service charge for paying with plastic and can give discounts for different payment methods. For example, this is why you may see gas prices listed cheaper when you pay with cash rather than credit or debit.
Yes, a merchant may decide (and is legally allowed) to give you a discount if you pay with a Visa instead of a Mastercard or American Express, or vice versa.
Merchants are required to disclose the surcharge fee amount at the time of your purchase. It should be clearly posted online or in the store. The fee will also show up on your receipt.
Chelsey Hurst is an associate editor at Finder. She loves empowering people to avoid financial pitfalls and make better decisions with their money. Chelsey has a Bachelor of Science from Redeemer University, a Master of Science from McMaster University, and has won multiple awards for research communication. In her spare time, Chelsey enjoys cooking and taking long walks in nature.
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