Credit Card Surcharges: What You Need to Know
Credit Card Surcharges: What You Need to Know
What is a credit card surcharge?
A credit card surcharge is an additional fee a merchant adds when a customer chooses to pay with a credit card instead of cash, debit, or another payment method. It is essentially a way for the business to pass some or all of its credit card processing cost on to the customer.
When a customer swipes a credit card, the merchant pays a processing fee to their payment processor and the card network. Credit card processing fees typically range from 1.5% to 3.5% of the transaction amount. Rather than absorbing this cost, some businesses add a surcharge to recoup these expenses.
For small businesses with thin margins, even a 2% to 3% processing fee can significantly reduce profit over thousands of transactions, which is why surcharging has become more common in some sectors.
Are credit card surcharges legal?
Yes, credit card surcharges are legal at the federal level in the United States. In 2013, a legal settlement between merchants and credit card companies ended the ban on surcharging, allowing businesses to pass processing fees onto customers who pay with credit cards.
However, the legality varies by state. Some states prohibit credit card surcharging entirely, while others allow it with specific restrictions. Merchants must also follow rules established by card networks like Visa and Mastercard, which include notification requirements and caps on surcharge amounts.
Credit card surcharge laws by state
While federal law permits surcharging in most states, some states have their own restrictions.
States that prohibit credit card surcharges
Currently, the following states and U.S. territories do not allow merchants to add a separate surcharge for using a credit card, although cash discounts may still be permitted if structured correctly:
California
Connecticut
Maine
Massachusetts
Puerto Rico
Because litigation and legislative changes occur periodically, merchants in these states should confirm whether any new exceptions, dual‑pricing allowances, or court decisions have modified enforcement.
States that allow surcharging but with specific restrictions
Several states permit surcharges but impose additional requirements such as lower caps, disclosure rules, or pricing‑display obligations.
Colorado allows surcharges but caps them at the lesser of 2% or the merchant's actual cost of accepting the card; disclosure is required at entry, point of sale, and on receipts.
Minnesota allows surcharges with strict transparency rules; in many situations, fees must effectively be built into the advertised price or clearly avoidable by choosing another payment method.
New York allows surcharging but requires merchants to post the total price for paying by credit card and prohibits charging more than the actual cost of acceptance; a 2024 law added explicit disclosure and cost‑based caps.
New Jersey, Nevada, South Dakota, Oklahoma, and Texas allow surcharges subject to various limits such as caps tied to cost of acceptance, signage and receipt requirements, and, in some cases, active enforcement by state regulators.
Each of these states has detailed rules; businesses operating there should review state‑specific guidance.
States where surcharging is permitted
In all other states, surcharging on credit card transactions is permitted as long as merchants follow card‑network rules, respect any state caps, and provide required disclosures. Even when a state has no special surcharge statute, regulators can still take action if practices are deceptive or unfair, so clarity and consistency are important.
IMPORTANT: State laws on surcharging are frequently updated and can be nuanced. Always confirm the current laws where you do business.
Card-network rules and requirements for surcharging
Businesses can't just add any fee to a credit card transaction. Card networks like Visa, Mastercard, American Express, and Discover have strict rules that merchants must follow when implementing surcharges.
Core rules common across major networks:
Credit cards only. You can never apply a surcharge to debit cards or prepaid cards, even if the customer runs them "as credit" at the terminal.
Profit is prohibited. Surcharges are meant for cost recovery. You cannot charge more than what you actually pay in processing fees to turn the fee into a profit center.
Clear and advanced disclosure. Networks require that customers see disclosure of any surcharge before they commit to the transaction, not just after the card is run. This generally means:
Signage at the entrance and point of sale for in‑person businesses
Clear on‑screen disclosure for online checkouts before card details are entered
A separate line item on the receipt showing the surcharge amount
Brand- and product-level rules. Merchants may need to pick between surcharging at the brand or product level. Some rules have been loosened in settlements, but overall limits remain.
Most card networks also require you to notify them and your merchant bank at least 30 days before you start surcharging.
How much can businesses charge in surcharges?
Most card networks cap credit card surcharges at 3% to 4% of the transaction amount or the merchant's actual processing cost, whichever is lower. In most cases, this means surcharges typically range from 1.5% to 3% of the purchase total.
For merchants, charging more than your actual processing fee violates card network rules and could result in penalties or loss of your ability to accept credit cards.
For customers, if you encounter a surcharge above 3% to 4%, report it to your credit card issuer for investigation.
Surcharging can affect customer perception. While it's legal in most states, some customers may view surcharges negatively and choose to shop elsewhere. If you are a business owner, consider whether the cost savings outweigh potential customer dissatisfaction.
Credit card surcharges vs. convenience fees
Not every extra fee on a payment is a surcharge. Networks and regulators distinguish between surcharges and convenience fees.
Surcharge
Applies specifically because the customer chooses to pay by credit card
Usually calculated as a percentage of the transaction amount
Subject to state laws and card‑network surcharge caps and disclosure rules
Convenience fee
Charged for using an alternative, non‑standard payment channel (such as paying online or by phone instead of in person), rather than for using a credit card itself
Often a flat amount, though structures vary
Can sometimes apply to multiple payment types (including debit), but each network has specific limitations on when and how convenience fees can be charged
Because rules differ by network and by how a business normally accepts payments, businesses should confirm whether a particular fee is properly treated as a surcharge or a convenience fee to avoid misclassification and non‑compliance.
For business owners: Alternatives to surcharging
Before implementing a surcharge program, many businesses consider other ways to manage processing costs and customer expectations.
Common alternatives include:
Cash discounts or dual pricing: Set standard prices that cover card costs, then offer a lower price for cash or debit payments if permitted in your state, with clear signage and consistent application.
Negotiating lower processing fees: Work with your processor or consider alternative providers to reduce your cost of acceptance and shrink the need for surcharges.
Minimum purchase amounts for credit cards: Card networks allow certain minimums on credit card purchases under specific conditions, which can reduce the impact of small‑ticket processing costs.
Operational changes: Reviewing chargeback rates, fraud tools, and pricing strategies can sometimes improve margins without adding visible fees.
Because customer perception of surcharges is often negative, some merchants find that cash discounts or clearly communicated dual pricing create less friction while still protecting margins.
For customers: How to avoid surcharges
Customers who prefer not to pay surcharges have several strategies:
Use cash or check: True credit card surcharges do not apply to cash or check payments.
Use a debit card: Network rules prohibit surcharges on debit card transactions, even when processed over credit card networks.
Choose alternative channels: Some businesses only apply surcharges in certain contexts (for example, in person but not online, or vice versa), so comparing options can help.
Consider rewards: For some cardholders, high‑value rewards (like 2% or more in cash back) can offset modest surcharges, though this depends on individual spending and benefit structures.
Watch for unclear or poorly disclosed fees and ask the merchant to explain them; if they appear non‑compliant, consider contacting the issuer or a consumer protection office.
Setting up credit card surcharges: Step-by-step
If you've decided surcharging is right for your business, proper implementation is crucial for compliance and customer relations.
Check your state's laws to ensure surcharging is permitted in your location, and review card-network rules.
Contact your payment processor at least 30 days before you plan to start surcharging, as they'll need to notify the card networks on your behalf.
Update your point-of-sale system to add surcharges automatically and print them as separate line items on receipts.
Create clear signage for your store entrance and checkout areas notifying customers of your surcharge policy.
For online businesses, add disclosure language to your checkout pages before customers enter payment information.
Regularly review your processing statements to ensure you're not surcharging more than your actual costs.
Using our proprietary cost database, in-depth research, and collaboration with industry experts, we deliver accurate, up-to-date pricing and insights you can trust, every time.