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A guide to credit card surcharges

A necessary evil required to cover the merchant’s processing fees.

You’re paying at the counter with your credit card. The merchant says, “Credit card transactions come with a $0.35 extra charge.” What’s that all about?

This is called a credit card surcharge. Though it’s annoying, merchants add it to cover their costs.

What is a credit card surcharge and when is it applied?

Credit cards are a form of convenience. Instead of carrying loads of cash or writing checks, you can simply swipe (or dip) a card.

Typically, the merchant pays for this convenience. Each time you use your card, they pay a processing fee — around 2% of each transaction — to the bank that issued your card.

For the merchant, this processing fee can make it difficult to turn a profit. As a result, they may pass along the cost to you by adding a credit card surcharge. This is an extra fee that’s added to your transaction.

When will I see a surcharge — and how much will it be?

You’ll rarely see surcharges at large retailers. But you could see them at mom-and-pop establishments, where bottom lines are more sensitive to credit card processing fees.

Merchants should only add a surcharge equal to what it costs them to process a card transaction. According to merchant credit card agreements, card surcharges tend to max out at around 4%.

For the most part, merchants aren’t barred by federal or state law from adding surcharges. Whether they can or can’t has more to do with agreements they have with their card processors.

According to the Durbin Amendment of the Dodd–Frank Wall Street Reform and Consumer Protection Act, retailers are allowed to add a surcharge on credit card transactions. They aren’t allowed to add surcharges on debit card or prepaid card transactions.

Merchants are allowed to require minimum purchases for credit card purchases — up to $10.

Not all merchants can add surcharges

Surcharges are illegal across the board in these states:

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

The legality of these states’ surcharge bans may be in question, though. That’s because a March 2017 Supreme Court ruling said these bans can be challenged in courts for impeding merchants’ free speech.

  • California’s surcharge ban was challenged in federal court, and the state is currently disallowed from enforcing it. That’s why you may see retailers adding surcharges, even when it’s technically illegal.
  • The Supreme Court decided against a ruling that upheld New York’s surcharge ban. The case has been sent back to the Second Circuit of the US Court of Appeals.

Time will tell what will come of surcharge bans. Given the Supreme Court’s ruling, these bans are on shaky ground.

Can merchants add surcharges whenever they want?

Merchants are allowed to add surcharges whenever allowed by federal and state law. If they do, however, they must clearly notify customers with conspicuous signage or distinct terms in written agreements before charging customers.

What if a merchant’s surcharge is too high?

Though credit card processors cap surcharges to 4%, merchants often charge a flat fee — such as $0.35 — per card swipe. If you’re paying for something that costs only a few dollars, this flat fee could equate to a large percentage of your purchase. For example, a $0.35 fee on a $5 drink is a 7% surcharge.

Before reporting the merchant to their credit card processor, consider bringing surcharge rules to their attention. Visa has a surcharge guide, as does Mastercard. If you find that surcharges continue to be a problem, you can contact the relevant card processors.

Credit card surcharges vs. convenience fees

Surcharges aren’t the only fee you could encounter during a purchase. You could also be assessed convenience fees when you use a credit card, though they’re not quite the same thing as surcharges.

Convenience fees are charged for payment methods that a merchant usually doesn’t accept. For example, a merchant might charge a convenience fee when you pay over the phone instead of online, or you might encounter one if you pay your taxes using a credit card. Like surcharges, convenience fees are mostly legal in the states that allow them, though the retailer needs to keep the fee under a certain percentage of the purchase price and alert consumers of the presence of the fee.

Common convenience fees

Convenience fees are less common than surcharges, though there are still a few circumstances you might encounter them, including:

  • Paying for movie tickets online.
  • Paying your taxes with a credit card.
  • Making a payment over the phone.
  • Certain digital payment methods, such as PayPal or Venmo.
  • Paying for utilities with your credit card.

How to avoid credit card surcharges

Credit card surcharges can be annoying, and they add up over multiple purchases. Here are a few ways to avoid them.

  • Carry cash. Not all small merchants add surcharges, but retailers are increasingly adopting surcharges to cover processing costs. To avoid the extra fees, use cash. Retailers are technically not allowed to add surcharges on debit transactions, but not all of them know — or choose to follow — the rules.
  • Don’t be afraid to say no. If a merchant adds a surcharge, they must notify you before your purchase.
  • Stop buying from retailers that charge convenience fees. You can always “shop with your feet” by taking your business elsewhere.
  • Read the fine print. If you’re making an online purchase or using a less common payment method, read the fine print to check for the presence of convenience fees. You can often avoid convenience fees by paying with another method.

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Bottom line

While credit card surcharges generally aren’t a big problem in the United States, they’ve become a significant issue in other countries. In the end, awareness and careful spending may be your best defense against these fees.

If you’re looking for more ways to save, compare no-annual-fee credit cards or low-ongoing-APR credit cards to find one that offers the right mix of low fees and great perks.

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