A user's guide to credit card surcharges | April 2018
credit card surcharge fee

A guide to credit card surcharges

A credit card surcharge is added on top of a purchase 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, there’s a reason 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.

This convenience typically doesn’t cost you anything. Instead, the merchant pays for your convenience. Each time you use your card, they pay a processing fee — typically 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 onto 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%.

Credit card surcharges vs. convenience fees

You could be assessed convenience fees when you use a credit card, but they’re not the same thing as surcharges.

A surcharge is a fee that covers the cost of a card transaction. Meanwhile, 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.

Are merchants allowed to add credit card surcharges?

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 are not 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.

Visa merchant inquiry form

Mastercard “Report a problem shopping” form

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.

Credit card surcharges generally aren’t a big problem in the United States, but they’ve become a significant issue in other countries. Australia passed tough laws against surcharges, for instance, and in July 2017 the UK banned surcharges outright.

In the end, consumer awareness may be the best defense against these fees.

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