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Credit Card Surcharge Fees Explained

The days of almost exclusively accepting cash or check payments are long gone as credit cards have now become the norm. Some new businesses are even opting out of cash and check payments altogether.

These changes are happening for good reasons; no one doubts that electronic payments have dramatically improved financial efficiency and consumer convenience, but with that “convenience” comes additional fees — namely interchange and processing fees.

These additional fees can add up. So much so that many businesses have opted to add a credit card surcharge to payments conducted with credit cards to compensate for this loss.

If you’re considering implementing this practice in your business, you need to be careful. The laws around surcharge fees change often and vary state by state.

What is a credit card surcharge?

A surcharge is any fee added to a transaction to compensate for credit card processing fees.

This definition doesn’t apply to all types of transactions — only credit card payments.

This is different from a convenience fee that merchants use to charge for the medium of sale vs. the type of sale.

For example, a mechanic charging an extra $3 online regardless of payment type is a convenience fee. They are charging for the convenience of paying online instead of in person or on the phone — NOT because it was paid for with a credit card.

Surcharges are specific to credit cards. Convenience fees are for ALL payment methods.

Similarly, credit card minimums are not surcharges. As long as your minimum is below $10 and credit cards are accepted regardless of association, you’re free to do that if you wish.

Consumers are also much more accepting and used to credit card minimums, so this can be a useful option for businesses trying to save on credit card fees.

Can you apply surcharges in your state?

In 2013, card member associations dropped their personal bans on surcharges and left it up to the states to decide their legality.

At the time of writing, there are currently 10 states with an outright ban on surcharges:

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

In these states, it is illegal to charge an additional fee on top of a credit card purchase, but many merchants choose to offer a “cash discount” instead to get around this. That workaround is also being contested in some states, so use caution when employing that strategy.

Keep in mind; if you conduct business in multiple states, you can also only charge surcharges in those specific states.

Should you apply surcharges?

Even if you’re already sold on applying surcharges, it’s smart to take a long look at how adding them could affect your business. Sure, saving money on processing fees sounds great, but you need to think of the bigger picture — more specifically your customers.

Customers don’t like surcharges... at all!

Most consumers think the practice is antiquated, and that credit card fees should be absorbed by the businesses themselves and reflected in their existing prices if need be. Most customers won’t even read that far into it; it will strictly be viewed as an inconvenience.

With this in mind, let’s look at the pros and cons.

Pros of Applying Surcharges

  • You will save money. Plain and simple. With every credit card transaction you will be recouping all or some of the processing fees. This can really add up over the course of each month depending on your sales volume.
  • If you know you’re saving on processing fees, you could pass that “discount” onto consumers by lowering prices. Having cheaper prices can help you appear more competitive, even though the consumer will be making up that difference through surcharge fees.

Cons of Applying Surcharges

  • Charging extra on a transaction isn’t a great customer experience, and consumers are generally against it. Even if you’re clear about it up front, it can put a sour taste in consumers mouths knowing they have to pay extra if they want to pay a certain way. Today’s business world is all about customer choice and convenience. Having a method restricted is neither of those things and has the potential to negatively impact your business.
  • You’ll need to be keeping an eye on surcharge laws and card association rules. These tend to change, and in order to avoid fines and penalties, you’ll need to spend time making sure your business is in compliance.

How to apply surcharges

If you want to apply surcharges there are specific rules you need to follow. These rules are set by the card associations i.e. Visa, MasterCard, Discover and American Express.

  • You need to let your merchant services provider know of your intention to start implementing surcharge fees.
  • You can’t stack surcharges. You must either commit to adding a surcharge to all cards of a certain brand (Visa, Mastercard) OR a certain card type regardless of brand (reward, charge, etc.)
  • Set up your POS to print out a “checkout fee” separately on your customers receipts. Your POS should support this, but if it doesn’t you may have to look into getting new POS software or hardware.
  • You need to post a clearly visible sign informing your customers you apply a surcharge.
  • You can’t charge more than 4% OR the total processing fees associated with each card. In other words, you can’t be directly profiting from an “inflated” surcharge fee.
  • You can’t apply a surcharge to debit cards or prepaid cards — even if the debit card is run as credit.
  • Surcharges must be included in refunds.


It’s safe to say credit card payments aren’t going away. As long as you’re in business, you will be accepting them, and you need to consider your long-term brand image to consumers. To the modern consumer, surcharges could be seen as inconvenient, and the younger your demographic, the stronger the reaction will be.

That doesn’t mean you can’t reduce your credit card processing costs, however. Offering cash discounts, switching to interchange plus pricing, fighting chargebacks, and more can lessen the burden and put more money back in your pocket.

Tailored Transactions offers the experience and expertise necessary to set up your merchant account in the most cost-effective and efficient manner possible.

Follow the link below to contact us for a no-obligation Free Rate Quote!

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