Can a business charge for using a credit card?

As the U.S. moves toward a cashless economy, the subject of credit card processing fees passed on by small business sellers becomes more topical.

Many businesses take responsibility for the merchant fees that come along with processing credit card payments by incorporating them into their pricing. However, some pass these fees directly to the consumer in the forms of convenience fees and surcharges. But are convenience fees legal? Can businesses charge you for using a credit card? Let’s take a closer look:

Common credit card transaction fees a business can charge

In short, merchant fees are legal in most states as long as the business follows the necessary protocols. But before diving into these specific protocols, it’s important to distinguish between the two kinds of fees that a business can charge: convenience fees and surcharges.

What is a convenience fee?

A convenience fee is charged when a customer uses a form of payment that isn’t customary for the business. For example, a business that typically accepts online payments may offer the option to pay by phone for a fee.

Convenience fees are legal in all 50 states but must be clearly communicated at the point of sale. Additionally, a convenience fee can only be imposed if there’s another preferred form of payment as an option.

What is a surcharge?

When a business charges a fee for a form of payment, whether in person, online or by phone, it’s called a surcharge. Credit card surcharges are applied when you use your credit card to make a payment.

In states where surcharges are legal, they must be clearly displayed at the point of sale and on your receipt. Regulations for surcharges are U.S.-specific, and merchants are prohibited from imposing surcharges on card payments abroad (with the exception to this rule being Canada).

Why do merchants pass credit card fees to customers?

You may be wondering why a seller would charge you a fee if you’ve already paid for your purchase. The reason most sellers charge fees boils down to how credit card transactions work.

Whenever a merchant accepts a credit card payment, the credit card network that processes the payment will charge a merchant fee. The merchant is expected to cover this fee.

However, those fees can add up quickly, which is why merchants sometimes try to avoid incurring the additional costs themselves. Because credit card use is so common, a business might price its products with these types of additional costs already in mind, but in some cases, a business will pass on these credit card fees to customers directly in the form of surcharges.

While some merchants don’t know they can charge extra, many avoid doing so simply because of the potential to create negative customer sentiment. It can also present a hassle for certain businesses to figure out how to impose the charges. Instead, many businesses take on the cost of processing credit card payments as a part of their overhead.

Gas stations, for example, fall under the category of businesses that can charge convenience fees and surcharges. However, the reason you are paying more with a credit card at the pump may come down to a game of semantics.

How much can a business charge for using a credit card?

When a business chooses to pass on its fees to a customer by imposing a credit card surcharge, there are protocols that have to be followed. For one, the business has to notify the appropriate credit card associations and clearly disclose that it charges a fee for the use of a credit card. Credit card surcharges can’t exceed the cost of accepting the card or 4 percent, whichever is the lower amount, even if it costs the business more than that amount to process your credit card payment.

Convenience fees work similarly as they are meant to help a business cover processing costs. Convenience fees usually range between two and three percent of the purchase price. Both of these fees are meant to help a business make up for any processing fees it may have to pay when you make a payment. For this reason, fees should not exceed the processing fee amount. If businesses attempt to charge more, they should be reported to your card issuer.

Surcharge legality by state

Credit card surcharges are handled differently in each state, but in states where it’s legal, the surcharge must be clearly displayed at checkout and on your receipt. Here’s a breakdown of what else you can expect from businesses around the country:

• Breakdown of surcharge legality by state
  

  State	The legality of credit card surcharges	State law synopsis
  Alabama	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Alaska	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Arizona	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Arkansas	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  California	Illegal	Credit card surcharges may not be applied by merchants with the exception of restaurants, which must disclose these fees clearing on their menus alongside their other prices. Merchants are required to disclose the total price, including any fees, for all goods and services upfront.
  Colorado	Legal	The maximum surcharge amount per transaction is 2 percent of the total cost to the buyer or lessee for the sales or lease transaction. Merchants are prohibited from applying the surcharge to cash or check payments, debit card payments, or payments made by redemption of a gift card.
  Connecticut	Illegal	Credit card surcharges may not be applied by any merchant. Merchants may also offer discounts for payment by cash, check or other methods unrelated to credit cards.
  Delaware	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  District of Columbia	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Florida	Illegal	Anti-surcharge laws remain in place in the state, but are generally considered unenforceable due to court decisions.
  Georgia	Legal	Convenience fees can be charged if other payment options without fees are offered. There is no statute on discounts for different payment methods.
  Hawaii	Legal	Merchants are prohibited from imposing surcharges on customers who choose to use a credit card instead of cash or other available payments. Merchants can impose surcharges if no other payment options are available. Merchants may also offer discounts for payment by cash, check or other methods unrelated to credit cards.
  Idaho	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Illinois	Legal	Credit card surcharges are limited to the cost of the processing fee associated with the transaction or to 1 percent of the total transaction cost to the buyer, whichever is less.
  Indiana	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Iowa	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Kansas	Illegal	Anti-surcharge laws remain in place in the state, but are generally considered unenforceable due to recent court decisions. To include surcharge fees, merchants must either list their products with the credit card surcharge included in the price and offer discounts for non-credit card payments or list two separate prices: one with the surcharge included and one for all non-credit card payments.
  Kentucky	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Louisiana	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Maine	Illegal	Anti-surcharge laws remain in place in the state.
  Maryland	Legal	There is no prohibition for credit card surcharges. Merchants may offer a cash discount for payment by cash.
  Massachusetts	Illegal	Credit card surcharges may not be added to any sales transaction. Merchants may offer discounts for payment by cash, check or other methods unrelated to credit cards.
  Michigan	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Minnesota	Legal	Merchants may impose a credit card surcharge of no more than 5 percent of the purchase price. Merchants may not impose surcharges on their own branded credit cards, and there is no statute on discounts for different payment methods.
  Mississippi	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Missouri	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Montana	Legal	Merchants can impose a surcharge of up to 3 percent of the total transaction for the buyer. There is no statute on discounts for different payment methods.
  Nebraska	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Nevada	Legal	Merchants can impose a surcharge as long as it doesn’t exceed the cost of the merchant’s processing fee. Merchants may offer discounts for payment by cash, check or other methods unrelated to credit cards.
  New Hampshire	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  New Jersey	Legal	Merchants can impose a surcharge as long as it doesn’t exceed the cost of the merchant’s processing fee. There is no statute on discounts for different payment methods.
  New Mexico	Legal	Merchants are prohibited from imposing surcharges on customers who choose to use a credit card instead of cash or other available payments. Merchants can impose surcharges if discounts for payment by cash, check or other methods unrelated to credit cards are available.
  New York	Legal	Merchants can impose a surcharge as long as it doesn’t exceed the cost of the merchant’s processing fee. To include surcharge fees, merchants must also either list just their product prices with the credit card surcharge included or list both the product prices with the credit card surcharge included alongside the price to use other payment methods.
  North Carolina	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  North Dakota	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Ohio	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Oklahoma	Illegal	Anti-surcharge laws remain in place in the state, but are generally considered unenforceable due to recent court decisions.
  Oregon	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Pennsylvania	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Rhode Island	Legal	To include surcharge fees, merchants must list their products with the credit card surcharge included in the price alongside the prices to use other payment methods. There is no statute on discounts for different payment methods.
  South Carolina	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  South Dakota	Legal	Merchants can impose a surcharge of up to 4 percent as long as it doesn’t exceed the cost of the merchant’s processing fee. There is no statute on discounts for different payment methods.
  Tennessee	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Texas	Illegal, except in the case of a government entity or private school	Anti-surcharge laws remain in place in the state, but can be allowed in specific circumstances outlined by a court case.
  Utah	Legal	To include surcharge fees, merchants must make the price of the product with and without the surcharge clear to the customer up front. There is no statute on discounts for different payment methods.
  Vermont	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Virginia	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Washington	Legal	There is no prohibition for credit card surcharges. Merchants may offer discounts for payment in cash.
  West Virginia	Legal	There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
  Wisconsin	Legal	There is no prohibition for credit card surcharges. Merchants may offer discounts for payment by cash, check or other methods unrelated to credit cards.
  Wyoming	Legal	Merchants may offer a discount of no more than 5 percent for payment by cash, check or other methods unrelated to credit cards.

The bottom line

As a consumer, it can be frustrating to face extra fees for a business to cover the cost of processing credit card payments, especially if you were hoping to earn rewards by using a credit card. When you have to pay a surcharge for using your credit card, it might feel as if that will cancel out the value of whatever potential rewards you were going to earn.

But passing on credit card fees to customers is legal in the majority of the U.S. Whether or not a merchant can charge them boils down to local laws and the parameters provided by payment processing networks. Being familiar with the restrictions in your area is important to ensure you aren’t overcharged.