Start accepting credit cards!

When Is It Legal to Add Credit Card Surcharges to Customer Purchases?


Accepting credit cards can be expensive for a small business. Paying even a small percentage of every purchase can severely cut into a business’s income. These fees remain one of the top reasons some small businesses still accept only cash and personal checks, ignoring the ever-increasing pressure to keep up with card-accepting competitors.

As an alternative, some businesses choose to pass that fee on to customers. This allows cash customers to continue to enjoy the same low prices while still covering the increase in operating costs. Otherwise, businesses would have to increase costs for everyone in order to cover the added expense. But it’s important that businesses are careful with this option, since it could be in violation of their cardholder’s agreement. It can also serve to alienate loyal customers. Here are a few things you should know about legally passing credit card fees over to cardholders.

When It’s Fair

At one time, American Express prohibited charging extra fees to customers for using their cards. This made it difficult, especially since laws required that these fees be applied to all card types. Businesses were forced to choose between foregoing fees to customers or removing American Express from their accepted card types. But the law changed in late 2013, when American Express reached a settlement agreement with multiple businesses in a class-action lawsuit. Under the terms of the agreement, businesses can now charge American Express-paying customers those extra fees as long as the same fees are passed along for customers using other types of cards. If a business chooses to charge fees for credit card use, that business must check its cardholder agreements for every card type it accepts.

When Notification Is Made

Credit card companies stipulate that merchants must let them know when they use payment card surcharge pricing in their stores. Visa requires 30 days’ notice before surcharges can be passed on to customers, as does MasterCard. Merchants should check their cardholder agreements before making this change and follow the rules as outlined there. It’s also important to limit this surcharge as stipulated by your agreement. Many credit card companies disallow surcharges from being applied to debit and prepaid cards.

When Customers Are Notified

In addition to requiring that you notify them, card companies also require that customers be notified of this surcharge as outlined in the cardholder’s agreement. The surcharge dollar amount will likely be required to be disclosed on the customer’s receipt and signage will likely need to be posted on your business’s front door, as well as at the point of sale. This means you can’t allow customers to come in and shop or dine, only to sneak a surcharge in on the bill and hope they won’t notice. As a result of having it on your door, you may find that some customers choose to walk away before entering your store because they don’t want to pay the fee.

When It Is Allowed Locally

Credit card surcharges aren’t allowed in every state, so it’s important that you know the laws as they apply to each state where you do business. If your business has a presence in multiple states, it’s up to you to adjust your policies for the states where surcharges aren’t allowed.

Credit card surcharges can keep your operating costs low while still making payment convenient for customers. However, they can also alienate some customers and get your business into legal trouble if you aren’t careful. Whether you choose to raise your rates universally to account for the extra cost or you opt to isolate surcharges to those who pay by credit, credit cards are the best way to reach all customers, even with the extra cost.