Is it legal to pass credit card fees to customers?
Credit card surcharges are optional fees that merchants charge customers who use a credit card to pay at checkout. Surcharges are legal unless restricted by state law and are limited to 4% of the total transaction.
There are legal options for passing on credit card fees to customers. Credit card surcharging and cash discounting are two options for passing on fees.
Businesses cannot impose any surcharge for using the following methods of payment: consumer credit cards, debit cards or charge cards.
There are state and federal laws to navigate, and credit card networks enforce disclosure. Merchants have to take extra steps, including putting up signage in-store to notify customers of surcharging.
Examples of Customer Notifications
For example, a point-of-entry disclosure could read as: “We impose a surcharge on credit cards that is not greater than our cost of acceptance.” In a point-of-sale scenario, your signage might display specific charges, such as: “We impose a surcharge of X% on the transaction.
Q: Where are credit card surcharging and convenience fees illegal? As of January 2023, only two states and one jurisdiction still outlaw the use of credit card surcharges. They are a result of non-qualified transactions of different communications methods.: Connecticut, Massachusetts, and Puerto Rico.
- Point-Of-Entry Disclosure: We impose a surcharge on credit cards that is not greater than our cost of acceptance.
- Point-Of-Sale Disclosure: We impose a surcharge of ____% on the transaction amount on Visa credit card products, which is not greater than our cost of acceptance.
Can businesses charge whatever they want as a surcharge? No, major credit card companies have rules that limit the amount a merchant can add to a customer's credit card purchase but typically prohibit businesses from charging more than their actual cost for processing credit card transactions.
While surcharge fees are legal under federal law, there are a few states and one jurisdiction that prohibit surcharges, according to the National Merchants Association. The laws in Connecticut, Massachusetts, and Puerto Rico do not allow merchants to impose surcharges.
- Call the customer service number on the back of your credit card or on your statement.
- Email customer service.
- Dispute through the financial institution's app.
- Dispute the transaction in writing (the address should be on your statement)
What is the new law for credit card fees?
CFPB Bans Excessive Credit Card Late Fees, Lowers Typical Fee from $32 to $8. WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) finalized a rule today to cut excessive credit card late fees by closing a loophole exploited by large card issuers.
After a class action lawsuit against Visa and Mastercard, businesses won the right to mark up card-based purchases to help cover their added costs. Surcharges may be up to 4% of the purchase at most but are often around 2% to 3%, in line with the seller's processing fees.
A surcharge is not a convenience fee. A convenience fee is levied by a merchant for offering customers the privilege of paying with an alternative non-standard payment method. Merchants can process convenience fees in all 50 states. A surcharge is levied by a merchant for customer purchases made with a credit card.
- The fee is only charged for a bona-fide convenience outside of the typical payment channels and sales process.
- The fee is applied to all payment channels, including cash.
Convenience fees can be a fixed dollar amount or a percentage of the transaction amount, usually 2% to 3%, and must be disclosed to the consumer in advance. Types of payments where the payee typically charges a convenience fee include mortgage payments, property tax payments, college tuition, and taxes.
Enable Service Charges
Go to Account & Settings > Business information > service charges on your online Square Dashboard. Click Create service charge. Name your service charge. Note: This name will be displayed on customer receipts and order summaries.
In short: It is safe to assume that the majority of states (except for Connecticut and Massachusetts) do allow businesses to pass on credit card fees to their customers.
Businesses cannot impose any surcharge for using the following methods of payment: consumer credit cards, debit cards or charge cards. similar payment methods that are not card-based (for example, mobile phone-based payment methods) electronic payment services (for example, PayPal)
You can almost always add a surcharge fee to credit card transactions, but many rules control how you do so. Meanwhile, you can never charge a surcharge fee on a debit card or prepaid card transaction.
You may only surcharge for the amount of credit card fees. It is illegal to profit from surcharges. While the rate varies from company to company, the absolute maximum amount you may charge is 4% per card brand and state rules. However, some states impose more nuanced caps.
How much can you charge for credit card surcharge?
Card brands agree on this for surcharging:
Per Visa, merchants must “Limit the amount to your merchant discount rate (MDR) for the applicable credit card or 3% whichever is lowest.” This is the reason merchants can get in trouble if their surcharge solution provider charges a flat amount for every card type.
- In-person: “There will be a $3 flat fee for online payments and credit cards. ...
- Online: “By selecting 'credit,' you agree to pay a $3 convenience fee.”
- Over the phone: “I'm happy to process your credit card payment, but please be aware there is a $3 convenience fee.”
What laws exist that may relate to surcharging? Currently, 10 U.S. states have surcharging restrictions including California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Please consult with legal counsel to determine whether your practices comply with relevant state law.
The Amendment — a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act — caps the interchange fees charged to merchants accepting debit card payments from consumers in the United States using debit cards issued by banks with over $10 billion in assets.
Credit Card swipe charges can vary but typically amount to around 2% of the transaction value for physical card transactions and 2.3-2.5% for online transactions.
