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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.
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.
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.
Surcharges are illegal across the board in these states:
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.
Time will tell what will come of surcharge bans. Given the Supreme Court’s ruling, these bans are on shaky ground.
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.
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.
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.
Convenience fees are less common than surcharges, though there are still a few circumstances you might encounter them, including:
Credit card surcharges can be annoying, and they add up over multiple purchases. Here are a few ways to avoid them.
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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