Are Credit Card Surcharges Legal? Yes, and Here’s How to Do It Right.

In Brief: The decision to implement credit card surcharging requires careful consideration. Businesses must follow key regulations, such as limits on surcharge percentages, state-specific bans, and mandatory customer notifications, while offering steps to ensure compliance. Additionally, there are critical questions to evaluate, including the potential impact on customer spending and competition, before implementing a surcharge program.

Finding ways to offset operating costs motivate many merchants implement or consider implementing a surcharge on credit card transactions. While surcharges can drive savings, there are important legal and card network parameters as well as customer impacts regarding the practice. This article offers guidance for compliant surcharging and highlights key questions prior to deciding to surcharge customers.

Understanding Credit Card Surcharge Regulations

Any time a business accepts a payment card for a transaction, it is charged a range of merchant fees, which are divvied up among the card-issuing bank, the payment network (e.g., Mastercard, Visa, Amex, and Discover), and the payment processor. In many cases, merchants are allowed to impose a surcharge to offset these fees, but there are specific rules and restrictions on surcharging based on a variety of criteria. Here’s a breakdown:

1. Applies Only to Credit Cards: Surcharges are allowed only on credit card transactions, not debit or prepaid card purchases. It is important to make sure your payment gateway can distinguish credit from debit cards.
2. Surcharge Limit: In April, 2023, the credit card brands lowered the maximum surcharge to 3 percent.
3. State Bans and Restrictions: As of December 2024, credit card surcharges are prohibited by state law in Connecticut, Maine, and Massachusetts. Several other states have enacted various restrictions on credit card surcharges, so it’s important you have a clear understanding of all relevant state regulations in the markets where you operate.
4. Customer Notification: Signage that clearly communicates the surcharge must be displayed at the entrances and all points of sale. This applies to all transaction channels – including onsite, online, and on the phone (prior to placing an order). In addition, the surcharge amount also must be displayed as a separate line item on the customer’s receipt.
5. Processor Notification: You must notify your payment provider 30 days in advance of implementing your surcharge.

Steps to Compliant Credit Card Surcharge Implementation

The following steps should be taken to ensure your surcharge practice is in a full compliance:

1. Verify that all point-of-sale systems and online payment gateways have the capability to distinguish whether a card being used in a transaction is a credit card, debit card or prepaid card.
2. Ensure your surcharge does not exceed 3 percent.
3. Confirm all credit card surcharge fees are clearly disclosed on signage, at all POS locations, receipts and digital platforms.
4. Notify your payment processor about plans to implement a credit card surcharge within the 30-day timeframe.

Ensuring your surcharge program is in compliance is important for many reasons – not the least of which is non-compliant programs are subject to fines from the card brands. Visa, in particular, has started to amp-up its enforcement of surcharging rules by employing mystery shoppers at merchant locations.

Key Questions Before You Decide to Surcharge

To minimize negative customer perceptions and sales impact, consider the following before you decide to implement your surcharge program.

Are credit card processing fees already factored into your pricing? Operating expenses, such as credit card processing, are often already accounted for in the pricing model. Ensure that you are not passing along a cost to your customers that has already been built into your prices.

Will customers spend less because of the surcharge? In many businesses, the average spend of a credit card buyer well exceeds the spend of buyers using other forms of payment. For example, if your credit card customers spend an average of 10 percent more, it likely doesn’t make sense to sacrifice the 10 percent in additional sales in order to save 3 percent in processing.

Does your competition surcharge? If your competitors are not surcharging, you may risk losing customers to them if you implement a surcharge program.

Credit card surcharging can be an effective strategy to offset costs and improve bottom lines, but it is a big decision that shouldn’t be made without awareness of all the details. The more you know, the easier it will be to decide whether it’s right for your business, and if so, implement your program by adhering to all the legal and card network guidelines.