Credit Card Surcharge

A surcharge is when a merchant charges a customer an additional fee to cover the cost of accepting credit cards. The surcharge is a percentage of the sales amount and cannot exceed 4 percent or what the merchant pays in swipe rates.

Surcharges cannot be levied on debit cards or prepaid credit cards.

Currently, all but six states and Puerto Rico allow surcharges. The states where it is illegal are Colorado, Connecticut, Kansas, Maine, Massachusetts, and Oklahoma.* If you are operating in more than one state, you can only surcharge in states where it is legal.

Visa, Mastercard and other major card brands have strict guidelines for surcharging. For example, you can’t charge more for one card than another. Additionally you must:

Post a notice to customers, at your store’s entrance and register, that your business imposes a credit card surcharge, including the rate of the surcharge, and that it does not exceed your processing fees

Have a point of sale system capable of disclosing the surcharge on a receipt as a separate line item, as well as reporting the surcharge in the network authorization request and in settlement

Notify your processor/merchant account provider in writing at least 30 days in advance of the date you plan to start surcharging. In turn, they will inform card associations.

Cash Discount

A cash discount is not a surcharge because it does not levy a fee to a credit card transaction.

Instead, it allows merchants to offer customers a discount for using cash, check or debit card to pay for purchases – typically 1-4 percent of the sales amount. To participate, merchants must disclose to customers that a discount for paying cash is available. An example of this is a gas station, which posts a price for both the discounted cash/debit price and for credit card payments at the pump.

It’s important to note that a merchant cannot add a fee on top of the usual price of an item and then give a discount at the register if the customers pays cash. The passage of the Durbin Amendment in 2010 made cash discounting legal in all 50 states.

Convenience Fee

A convenience fee is levied by a merchant on purchases for the privilege of paying with an alternative payment method that is not standard. For example, a theater or concert venue that allows customers to purchase tickets online or by phone for a fee versus having to stand in line at the box office. Governments and universities also frequently charge a convenience fee when taxes and tuition are paid by a method other than automated clearing house (ACH) transfer.

A convenience fee is typically a flat dollar amount. It is not a surcharge because technically, you're not paying for using your credit card, but for the privilege of using the pay-by-phone or pay-by-online option.

Convenience fees are allowed in all 50 states. As with surcharges, it is best to check with card networks and your processor. For example, Visa allows convenience fees if:

Payment takes place across an alternative channel such as online or by phone

Customers are told of the fee in advance, or it is clearly disclosed

The fee is a flat or fixed price rather than a percentage of the sale