These fees range in cost depending on the card network but are typically around 1.3%-3.5% of the total transaction. That could be because: While its legal under federal law to add a surcharge to credit card transactions, somestatesprohibit the practice. By Any Other Name: Even if Legal, a Surcharge Is Still a Surcharge Youve likely seen this in cash prices at the gas station, which are generally 5 to 10 cents lower than credit prices. Any business with a loyal following can notify customers that they prefer not to take credit cards, and the business might even be able to offer discounts for cash purchases (though it may depend on state law). If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. What you need to know about the new credit card surcharge You should double-check with the service provider/financial institution directly as well as obtain independent financial advice prior to making any financial commitments or business decisions. "Surcharging Credit CardsQ&A for Merchants. Surcharging: A State-by-State Guide - Paystand States not formally approving of the changes are MA, ME, CT, CO and OK, but expect to soon. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. For example, Colorado passed a new law to allow surcharges, which will take effect July 1. Best Balance Transfer & 0% APR Credit Cards, NerdWallets Best Credit Card Tips for June 2023, Get more smart money moves straight to your inbox. It costs a retailer to accept a credit card transaction, so if you want to help out a retailer, consider using another form of payment like cash. Learn more about how we make money. A few states prohibit or limit the use of surcharges. The vendors that appear on this list were chosen by subject matter experts on the basis of product quality, wide usage and availability, and positive reputation. In recent months, these practices have become more common, particularly as some merchants -- both big and small -- hunt for additional revenue amidst the pandemic. Opinions expressed here are the authors alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. But as you might expect, officials aren't likely to go from store to store to ensure laws are being followed unless there's a massive flood of complaints. A U.S. Supreme Court ruling in 2017 protected surcharges as a form of free speech from merchants. This information may be different than what you see when you visit a financial institution, service provider or specific products site. Do not sell or share my personal information. Over the years she has had the opportunity to interact directly with consumers to conduct product research, gather insights and evaluate user experiences. These practices are particularly egregious in the rental car and telecommunications industries. For debit cards and prepaid cards, surcharging is prohibitedeven when the card is run as a signature-based transaction without the PIN. The surcharge percentage is different based on the type of card. Merchants must also follow all surcharging requirements imposed by the credit card associations (Mastercard, Visa, American Express, and Discover). Check Out Our Preferred Point of Sale Software . Understandably, Visa, for example, officially opposes surcharging as a practice, because it penalizes cardholders from using their preferred method of payment. But they're not legal in. We may be compensated if you click this ad. However, the site does say that surcharges are permitted when charged by state or local governments that accept credit cards. is illegal and any surcharges are illegal in 10 of the 50 states California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. While both of these methods pass the cost of credit card processing onto the consumer, the only apparent difference is that with surcharging, the extra cost is added to the advertised price. https://money.com/credit-card-surcharge-legal-or-illegal/, How many times have you tried to pay with a credit card only to be told: "There's a surcharge for credit card transactions.". What are the requirements for surcharging? Note: A convenience fee isnt the same thing as a surcharge. What about Discover? Besides, there are also costs associated when a store accepts cash or checks as payment. In the context of credit cards, surcharging is defined as adding up to 3 percent on credit card transactions to recoup payment processing costs. These fees began to be passed on to consumers in 2013, following a class-action lawsuit that businesses and merchants brought against Visa and Mastercard in response to such costs. Merchants that choose to impose surcharges are required to notify Visa at least 30 days in advance of implementing the policy. So before you decide to implement a surcharge, you should check that your existing processing setup supports it. Convenience fees and surcharges are legal, as long as they stay under a certain percentage of the purchase price and arent assessed in a state that bans them. This field is for validation purposes and should be left unchanged. For example, surcharging is allowed in most states, but there are some exceptions in the United States. Those practices were not necessarily illegal at the time, but they were a violation of the merchants agreement with their payment-processing services. Compare the cost in points or miles to cash, and see which option is best. Credit Card Surcharge Laws By State Explained | LawPay Disclaimer: NerdWallet strives to keep its information accurate and up to date. Credit card surcharges are Illegal in Massachusetts, but some The rating of this company or service is based on the authors expert opinion and analysis of the product, and assessed and seconded by another subject matter expert on staff before publication. Credit card surcharges are becoming more widespread. However, since 2017, federal courts have overturned all but a few states' and U.S . How To Remove Items From Your Credit Report, How To Boost Your Credit Card Approval Odds. Nevertheless, more businesses have tacked on these fees as they weather COVID-19. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. Here's what to do. Under Visa and Mastercard, retailers are required to register the surcharge with the payment network. For example, the surcharge for all Visa cards would be the same percentage. If your merchant fees are getting to be prohibitively high, you might want to consider finding a new processor instead of resorting to credit card surcharging. In fact, since the COVID-19 pandemic many merchants are now only accepting credit and debit cards and they're not accepting cash. This verdict, along with several others throughout the U.S., has ultimately left only four states and one territory that explicitly make it illegal to impose an extra fee for using a credit card: However, businesses must still conform to certain requirements, depending on the state, including full transparency of surcharges and displaying a notice at the point of sale -- whether it's a brick-and-mortar or online merchant. Customer acceptance tends to increase when something becomes common practice. Is it Legal to Charge Customers a Credit Card Processing Fee? This site does not include all credit card companies or all available credit card offers. Cash discounting deducts the costfrom the advertised price when a payment method other than a credit card is used. However, there are times when paying the fee can be worth it. Should You Add A Credit Card Surcharge Policy? NORWOOD, Mass. Visa views surcharging as a practice that penalizes cardholders, and American Express goes as far as asking cardholders to report businesses that add surcharges on its cards. For example, when accepting payments from clients who use health insurance, a surcharge could complicate the billing process. The state now allows merchants to add a surcharge of up to 2% of the total cost of a transaction. The settlement agreement impacts the rules related to the surcharging of credit card purchases made in the U.S. and U.S. territories only. We love credit cards around here, especially those that provide our readers (and ourselves) with awesome benefits. It wasnt too long ago that we saw a similar situation with merchants charging extra. Here is a list of our partners. Credit card surcharges are fees that are added to a credit card transaction. A classic example? Credit card surcharging has rapidly gained in popularity in recent years as court decisions and legislative changes have gradually removed legal barriers to the practice. You may have to pay a surcharge to use your credit card here's what Whether you're looking to save money on processing or to get approved for a merchant account, PaymentCloud can help. Powered and implemented by Interactive Data Managed Solutions. Disclaimer: Merchant Maverick aims to provide accurate and up-to-date information to assist you in your research. Furthermore, merchants are required to create signage at the point of entry and point of sale, alerting customers about credit card surcharges, and they must itemize the surcharge on transactions. The surcharge fee can't be more than the cost of processing the credit card and is capped at 4% of the purchase price. What are these credit card surcharges? The Baker administration has made moves to weaken what experts say is one of the most fundamental consumer protections in Massachusetts law, which says a seller cannot impose a . The name surcharge is to advise consumers that there is an added feewhich is the cost of accepting the credit card they are presented withto their total checkout amount.. In the United States, credit card convenience fees are legal. While for many years merchants grudgingly accepted card processing expenses as the cost of doing business, today, more and more business owners are turning to credit card surcharging as a way to pass those costs onto their customers who choose to pay by credit card. Consumer rights: payment surcharges - GOV.UK The primary disadvantage of surcharging is that it can result in lost sales and lost customers by making it more expensive to use a credit card. First, you need to consider which cards your business accepts because that will affect your policies. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. This form is for feedback only. But they have to be a flat fee (say, $2 per transaction) rather than a . In the past, retailers werent allowed to set minimums or add surcharges. I justify the extra cost by the gaining of points and convenience," TPG reader Terri Austin told me. For now, the takeaway is that you can incentivize cash-paying customers with a discount, as opposed to discouraging card payments by adding a fee. However, that doesn't mean that cardholders would not accept a surcharge, especially if they are notified in advance, as required by law, and given the business reason for the charge. Policy Research - National Conference of State Legislatures These minimums can't be more than $10, and the minimum can't be set higher than what other merchants in the same card network use. Merchants should review the actual rule change and complete the required notification process before implementing a surcharge on Mastercard credit cards. Are Credit Card Surcharges Legal? - Zenti All financial products, shopping products and services are presented without warranty. Convenience charges may also be levied if you call and make a bill payment over the phone instead of mailing in a check or paying online. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free. This way, consumers will never pay more than the advertised price, regardless of which method of payment that they choose. Our partners compensate us. He has a Bachelor of Science degree in Psychology from The Pennsylvania State University and a Juris Doctorate degree from the Ventura College of Law, and currently resides in Paso Robles, California. However, because of the way Squares system is set up, it deducts the processing fee from the total transaction (after tax, tip, and yes, the surcharge). Whether you are paying a convenience fee or surcharge, its only legal if the payee alerts you to the fee. A surcharge is a small fee that is added to the cost of a transaction if the customer chooses to pay with a credit card. Lots 81-82 Street C Only once I pulled out my credit card did the merchant object to my form of payment and tell me it would be adding a 5% surcharge to the transaction. Pre-qualified offers are not binding. The short answer is yes, it is legal for a merchant to impose a surcharge. Surcharges | Smartpay - GSA Case in point: credit card convenience fees and surcharges. Where Does the Money for Credit Card Rewards Come From? The answer to this question will depend on both your customers and what your competitors are doing. For example, a customer might be charged $1.00 to use a card. When suspicious charges show up on your statement, they may be a sign of fraud. Even if you sign for the debit transaction (which means it could technically be processed as a "credit" transaction), it still shouldn't come with a surcharge as long as you used a debit card. For instance, Visa requires all businesses that impose a card surcharge to give consumers written notice at least 30 days in advance. She is based in Ypsilanti, Michigan. Regulations are confusing for everybody, and some merchants innocently break the rules because they don't understand them. The card processors agreed to allow a specific structure for fee assessment at time of sale. Some businesses do have success with the zero-fee processing model. However, this does not influence our evaluations. When evaluating offers, please review the financial institutions Terms and Conditions. You might have even wondered if credit card surcharges in which customers are charged an extra 3% or so when paying by credit card are even legal. However, the sample signage is specific to Visa surcharges and doesnt mention any other card brands. NerdWallet Compare, Inc. NMLS ID# 1617539, NMLS Consumer Access|Licenses and Disclosures, California: California Finance Lender loans arranged pursuant to Department of Financial Protection and Innovation Finance Lenders License #60DBO-74812, Property and Casualty insurance services offered through NerdWallet Insurance Services, Inc. (CA resident license no. This information may be different than what you see when you visit a financial institution, service provider or specific products site. Using a credit card can also be better for peace of mind, including fraud and return protection. Another sign it might be better to give your credit cards a break is if you're having trouble keeping up with the minimum payments on your accounts . Squares help center page on surcharges specifically says that some merchants use a third-party calculator app to help them figure out the math. To paint a better picture of why you, as a consumer, may have a card processing surcharge imposed, we first have to take a step back and explain how credit card networks (such as Amex, Visa, Mastercard) operate from a business perspective. NCSL conducts policy research in areas ranging from agriculture and budget and tax issues to education and health care to immigration and transportation. Here's what you need to know about these fees. All but a few states now allow the practice, making it a viable option for most small business owners in the US. Check out. It's important to note that a surcharge is distinct from a convenience fee . For a long time these fees were not felt by consumers, but between the increased number of customers paying with a credit card and the rise in the cost of doing business in recent years, surcharges are becoming far more commonplace as a way to help merchants cover their own expenses. The surcharge notice must appear on the businesss homepage for online transactions. Surcharging remains prohibited outside the U.S. unless there is a local law or variance that requires merchants be permitted to engage in the practice. On the surface, adding a surcharge to credit card purchases may seem like an easy way to cut costs. Betsie Van Der Meer / Taxi / Getty Images. Visa charges a combination of flat fees and percentages of sales that vary by industry and merchant. The good news is that while the legality of surcharges has been murky in the past, as of 2023, credit card surcharges are now legal in all U.S. states except for Connecticut and Massachusetts. For example, STOP Fraud Colorado, the website for the Colorado Attorney General's Office, explains, "Under Colorado law, it is illegal for any merchant to impose a surcharge on a purchaser or lessee who elects to use a credit or charge card in lieu of payment by cash, check, or similar means." Retailers can also require a minimum purchase amount when you use credit cards. Lisa A. Anthony is a writer on NerdWallets small-business team, primarily covering payroll software and payment processing. Along with all of the increased credit card usage, theres been an uptick in surchargeswhich are fees that payment processors and credit card companies charge merchants and retailers. What is a credit card surcharge? Identify a payment provider that best suits your needs. To stay on top of your credit, click below and get the help you need now. Convenience Fees: What Are They and Can You Charge One? ", Federal Trade Commission. The notice must include the rate you charge and a comment that it doesnt exceed your processing fees. But of course, in an increasingly cash-free world, your other payment options are rather limited. Check out Clover for simple, easy-to-use small business point of sale solutions. What are the disadvantages of credit card surcharging? Have you ever gone to pay for something with a credit card, only to be told that you'd be charged a fee for using a card instead of cash? Some of these states had addressed this issue even before the 2013 law addressed it on a national level. But at the same time, card surcharges can also ultimately deter sales and leave a bad impression on the consumer. You will need to check the laws for the state(s) where your business operates. (Antonio Diaz/stock.adobe.com) This story idea came from audience . Knowing the new rules: Passing on credit card fees 12 Halloween Marketing Ideas for Your Small Business. Thats one reason our experts rate this card as a top pick to help get control of your debt. Our opinions are our own. or service. Our partners cannot pay us to guarantee favorable reviews of their products or services. Let us know how well the content on this page solved your problem today. While it's entirely legal for merchants to impose credit card surcharges, many are slow to adopt them. This amount is generally two to three percent of the purchase price. Its true that the additional revenue generated by surcharge fees can defray the expense of credit card processing at the transaction level. Merchant Mavericks ratings are editorial in nature, and are not aggregated from user reviews. . A surcharge is an extra fee that a business or merchant adds to the price of a purchase when payment is made using a credit card instead of cash. In a worst-case scenario, merchants may lose more money in lost sales than they save on transaction processing costs by implementing surcharging. As you might have guessed, some businesses pass these fees directly to cardholders. Keep up with your favorite financial topics on NerdWallet. It's illegal to charge credit card processing fees in these 5 states. Let's dive in. Are merchant surcharges legal in my state? Terms & Conditions. We may earn affiliate revenue from links in this content. While it might seem like a matter of semantics, cash discounts have always been allowed, ensuring that consumers will never pay more than what is shown. According to November data from the Nilson Report, consumer and commercial credit, debit, and prepaid general-purpose cards generated $9.7 trillion in transactions in 2021: a 22.5% increase over the previous year. If you've come across a business requiring a credit card surcharge or in our COVID-19 era, a pandemic recovery fee, you're far from alone. A convenience fee is a charge incurred for the privilege of paying for something, with a payment method that would normally not be used for such a product. A surcharge is a fee paid by a customer who chooses to use a credit card to purchase a good or service. The laws in Connecticut, Massachusetts, and Puerto Rico do not allow merchants to impose surcharges. It now caps credit card surcharges at the higher of the merchant's costs or 2%. The Durbin Amendment specifically deals with debit transactions, including the implementation of a cap on credit card interchange fees. Depending on the state laws in your area, you may also be able to report the merchant to your states attorney general. Credit Card Surcharge Laws by State: A Guide for AEC Pros Additionally, each credit card company has its own rules that businesses must abide by as part of the merchant agreement. A surcharge is an extra fee that a business or merchant adds to the price of a purchase when payment is made using a credit card instead of cash. Guaynabo, PR 00968, By clicking "Continue" I agree to receive newsletters and promotions from Money and its partners. When evaluating offers, please review the financial institutions Terms and Conditions. Some merchants, like many consumers, may not know the legality of surcharges. That said, if your product is unique, you have a strong customer following, or you have some sort of other special value proposition, youre less likely to feel pressure to conform to the same practices. Copyright 2023 Merchant Maverick. Business owners have to pay credit card processing fees. If your payment processing provider is doing any of these six things, it's probably time to switch. The minimum cant exceed $10 and must be the same for card networks. American Express, Mastercard and Discover all have similar requirements for merchants that choose to impose surcharges on their customers. Here are credit card perks you may want to look out for. Terms apply to the offers listed on this page. She loves numbers and aims to demystify data sets to help consumers improve their financial lives. Surcharges are legal in most states, but there are rules that must be followed by the business. Beside being a source of annoyance for cardholders, there's the question of legality and enforcement. She has been an investor, entrepreneur, and advisor for more than 25 years. Retailers can also require a minimum purchase amount when you use credit cards. In her spare time, Erin reads voraciously and tries in vain to keep up with her two kids. It's a payment method that's simply more convenient and easier to manage than others and of course, there's the risk of misplacing cash. Tax and tip aside, the price you see is the price that you want to pay. Erin El Issa is a credit cards expert and studies writer at NerdWallet. ", National Conference of State Legislatures. However, he must have been misinformed, as Square's website indicates that it charges just 2.65% for card present transactions like the one I was making. Colorado is the newest state to legalize surcharging and caps surcharge rates at 2%. These fees are called credit card surcharges, and they're more common than you might think. Lisa is a small-business writer at NerdWallet and has more than 20 years of experience in banking and finance. The COVID-19 pandemic triggered a variety of changes in our daily lives, including a further shift away from using cash to pay for purchases and a greater reliance on contactless forms of payment such as credit cards and debit cards. Square is a top choice for POS for any type of business. Are surcharges legal?: Everything you need to know A merchant's ability to apply a surcharge is conditioned on the merchant's satisfaction of certain disclosure requirements. Your merchant services provider will reprogram your payment gateway or processing hardware (i.e., countertop terminal, point of sale (POS) system) to calculate and apply the surcharge to applicable transactions automatically. For starters, enforcement isn't always easy. Both require labor to count and deposit. Is It Legal? Adding Surcharges to Credit Card Transactions She is a FINRA Series 7, 63, and 66 license holder. A business can offer a discount to customers who pay with cash to reduce the number of card transactions. Before we discuss the various credit card association guidelines for surcharges, lets address whether its legal to charge a fee for using a credit card or not. Senior Writer | Data analysis, personal finance, credit cards. Fortunately, the overall guidelines for the networks are mostly the same: Once youve read and understood the core credit card surcharge rules, theres still more work to do. Laws also vary by state. Your California Privacy Rights/Privacy Policy. Today, I'll walk through why these pesky fees are in place at many businesses, if they're even legal to begin with and whether you should still pay with a credit card the next you come across one.