The Pros and Cons of Surcharges
What is a credit card surcharge and when is it applied?
Paying with a credit card is a convenience. Swiping a card instead of carrying loads of cash or writing checks is how many people choose to pay for things today.
This convenience typically doesn’t cost you anything. Instead, the merchant pays for your convenience. Merchants pay a processing fee each time you use your card, typically around 2% of each transaction to the bank that issued your card.
This processing fee can make it difficult to turn a profit for the merchant. By adding a credit card surcharge they pass along the cost to you.
Credit card surcharge is an extra fee that’s added onto your transaction. Merchants add it in order to cover their processing fees even though it can be annoying for you, the customer.
For example, if you’re paying at the counter with your credit card and the merchant says, “Credit card transactions come with a $0.35 extra charge,” a surcharge is what they’re really talking about.
So, when will you see a surcharge — and how much will it be?
At large retailers you’ll rarely see surcharges. Mom-and-pop establishments, where bottom lines are more sensitive to credit card processing fees is where you would more often see them.
Merchants should only add a surcharge equal to what it costs them to process a card transaction. Card surcharges tend to max out at around 4%, according to merchant credit card agreements.
Credit card surcharges vs. convenience fees
Convenience fees are different than surcharges. When a fee covers the cost of a card transaction, that is a surcharge. Meanwhile, convenience fees are charged for payment methods that a merchant usually doesn’t accept. For example, a merchant might charge a convenience fee when you pay over the phone instead of online.
Are merchants allowed to add credit card surcharges?
For the most part, merchants aren’t barred by federal or state law from adding surcharges. Whether they can or can’t has more to do with agreements they have with their card processors.
Retailers are allowed, in keeping with the Durbin Amendment of the Dodd–Frank Wall Street Reform and Consumer Protection Act, to add a surcharge on credit card transactions. They are not allowed to add surcharges on debit card or prepaid card transactions.
Merchants can require a minimum purchase amount of up to $10 for you to use a credit card so that it covers the cost of their processing fees.
Surcharges are illegal in the following states:
- California
- Colorado
- Connecticut
- Florida
- Kansas
- Maine
- Massachusetts
- New York
- Oklahoma
- Texas
The legality of these states’ surcharge bans may be in question. That’s because a March 2017 Supreme Court ruling said these bans can be challenged in court for impeding merchants’ free speech. Currently, these bans are being challenged in both New York and California.
When can merchants add surcharges?
Whenever allowed by federal and state laws, merchants are allowed to add surcharges. They must clearly notify customers with conspicuous signage or distinct terms in written agreements before charging customers if they do add surcharges.
What if a merchant’s surcharge is too high?
Merchants often charge a flat fee such as $0.35 per card swipe even though credit card processors cap surcharges to 4%. This flat fee could equate to a large percentage of your purchase if you’re paying for something that costs only a few dollars. For example, a $0.35 fee on a $5 drink is a 7% surcharge.
Paying for products and services today has changed as many people now use credit cards to pay for their items. With the changes come costs, including surcharges and convenience fees, both of which you as a customer now have a better understanding and awareness of.
