Does a Recent Class Action Lawsuit Spell Trouble for Surcharging Merchants?

A recent class action lawsuit in the hospitality and live events industry is a clear warning to all businesses: hidden fees and poor disclosure can lead to serious legal trouble. It is alleged that the company named in the suit used deceptive pricing tactics by advertising lower prices and hiding mandatory fees until the final step of checkout. This perceived bait-and-switch approach was said to have violated consumer protection laws and triggered federal action.

While this case centers on additional fees and mandatory handling charges for ticketing and live events, the implications can apply to any merchant that adds fees – possibly including credit card surcharges. To ensure your business stays far away from any lawsuits or negative attention, make sure you are surcharging the right way so that customers are fully aware of any added fees before they choose to use their credit card.

Understanding Surcharging

Surcharging refers to the practice of adding an extra fee to a customer’s bill when they choose to pay with a credit card. The main purpose of this additional fee is to offset the cost of credit card processing currently footed by the merchant. Merchants typically implement surcharging to lower these operational expenses, especially in industries with tight margins. Merchants may also encourage customers to use lower-cost payment methods like debit cards or cash. It is important to note, while surcharging sounds like an easy way to offset processing costs, it is subject to strict legal regulations so it is very important to follow the rules and maintain compliance.

Implementing Surcharging the Right Way

The very first thing to identify before even considering implementing surcharging for your business should be – is surcharging legal in my state? As of 2025, surcharging is illegal in Maine, Connecticut and Massachusetts. Other states allow surcharging but impose certain conditions, such as caps on surcharge amounts or requirements to include fees in advertised prices. It is imperative to familiarize yourself with your state’s surcharging rules first.

If you are in a state in which surcharging is legal, and you decide to move forward with implementing it, here are some very important things you must do to remain compliant:

• Notify Card Brands: Visa, Mastercard, and other networks require merchants to register their surcharge program at least 30 days in advance. If you are unfamiliar with this process, your payment processor should be able to help.
• Display Clear Signage: Disclosure is your legal shield. Customers must know about the surcharges before they pay. You must display clear notices of surcharging at the following locations:
  • Entrance signage: Printed signage must appear at the entrance of the building. .
  • Point-of-sale: Surcharging notice must be displayed on the terminal or counter where the transaction takes place.
  • Phone orders: Must be verbally spoken to customers, One example might be: “Just a heads-up, there’s a 3% credit card surcharge.”
  • Online checkout: Surcharge notice must be shown clearly at checkout before payment is submitted. To be safe, clearly indicate the surcharge on credit cards before payment information is even entered.
• Cap the Fee: Ensure the surcharge does not exceed your actual processing cost or the card network’s maximum, which is 3%.
• Only Surcharge Credit Cards: Surcharges cannot be applied to debit card or cash purchases. This is where many issues can arise. Some payment systems cannot distinguish between a credit card and debit card.
• Use Compliant Payment Systems: Choose payment devices that support surcharge calculations and receipt formatting. This means the receipt must clearly indicate the additional surcharge amount as a separate line item.

Understanding the Impact of Surcharging on Your Business’s Sales

Implementing surcharging can significantly influence customer behavior and ultimately, your bottom line. While it helps offset processing fees, it may also change how your customers choose to pay and how much they spend. Customers often spend less when paying in cash or debit card when compared to paying with a credit card. Credit cards offer convenience, rewards, and extended purchasing power, which can lead to higher spending. In contrast, cash and debit transactions are more constrained by available funds. The average credit card transaction is $96.56 compared to the average cash transaction, which is $22. This means credit card purchases are typically 3-4x larger than cash purchases. If surcharging encourages customers to switch to cash or debit, you may see a reduction in average ticket size, which could offset the savings from recouping processing fees.

Questions to Ask Before Implementing a Surcharge

Before moving forward, consider these questions:

1. Is surcharging legal in your state?
2. Will your customers react negatively?
   Are they likely to switch payment methods or take their business elsewhere?
3. What is your current payment mix?
   How much of your revenue comes from credit card transactions vs. cash or debit?
4. What is your average ticket size by payment method?
   Will a shift away from credit cards reduce your revenue?
5. Do you have the right technology and signage?
   Card networks require clear disclosures and proper technology that supports surcharging.
6. Are you prepared to monitor and adjust?
   Track changes in payment behavior and average sale value to ensure surcharging is helping, not hurting. your business.

Balancing Business Needs with Customer Expectations

Before implementing a credit card surcharge policy, it’s essential to weigh customer opinion carefully. While surcharging can help offset processing fees, it may also create friction with customers who perceive it as an unfair or unexpected cost 42% of consumers have stopped using a business due to “junk fees” like surcharges. Negative reactions can also lead to poor reviews, reduced customer loyalty, and damage to your brand reputation, especially if the surcharge isn’t clearly communicated.

Ultimately, aligning your surcharge strategy with customer expectations ensures you protect your margins without compromising trust.

In Conclusion

In light of the pending class action lawsuit, it’s more important than ever for businesses to prioritize transparency and compliance regarding credit card surcharges. Clearly displaying proper signage at entrances and points of sale not only fulfills legal requirements but also helps maintain customer trust, reducing the risk of misunderstandings that could lead to litigation. By proactively communicating surcharge policies, businesses can protect themselves legally while fostering positive relationships with their customers.