What States Can Charge the Credit Card Surcharge? A Complete List of Places Where Surcharging is Legal (and Where It’s Not)

Businesses today have more options than ever before in how they accept payments, the most common of which are debit and credit card payments. With debit and credit card payments, there are many factors at play between processing fees, the various card payment networks, and costs associated with accepting cards.

In this article, we’ll discuss credit card surcharging and key facts your business needs to know –including what it is, where it is legal, and how to implement it. You’ll also learn how to offset processing costs with surcharging.

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What are Credit Card Surcharges?

All financial institutions require an interchange charge for processing card transactions. To help offset that cost, merchants may opt to add a credit card surcharge, which is also known as a “checkout fee”. This practice adds an additional charge to the transaction, paid by the customer, which covers the cost of the interchange fee.

Important to note: surcharges cannot be charged to make a profit and may not exceed 4 percent of the transaction total.

For additional information on this topic, check out this blog post.

What is the Difference Between Convenience Fees and Surcharges?

A convenience fee differs from a surcharge in a couple of key ways. Convenience fees are an additional fee charged by the business owners for the “convenience” of using a non-standard payment. For example, if a business typically operates in person, but accepts payment via a phone order, the merchant may charge a convenience fee.

Two key differentiators of convenience fees are they are always a flat dollar amount and cannot be charged for card-present transactions.

Another strategy that merchants can use to offset costs is instating a minimum transaction amount for credit card transactions, which can be no more than a $10 minimum. It is not technically required to disclose minimum purchases, but highly encouraged to avoid negative customer experience.

Additionally, minimum purchase requirements can only apply to credit card transactions.

Is Debit Card Surcharging Legal?

For debit cards and prepaid cards, surcharging is prohibited—even when the card is run as a signature-based transaction without the PIN.

This restriction was implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Durbin Amendment refers specifically to debit card transactions and includes the cap on interchange fees from the card networks.

Where are Credit Card Surcharging and Convenience Fees Illegal?

For the most part, credit card surcharging and convenience fees are legal across the United States because of a 2017 Supreme Court ruling that held that surcharges are protected  free speech for merchants. However, as of January 2022, there are 10 states and US territories where surcharging is either illegal or have anti-credit card surcharging and convenience fee laws on the books; those states are:

Locations where surcharging is completely illegal Locations where anti-surcharging laws are unenforceable or have been limited
  • Connecticut
  • Massachusetts
  • Puerto Rico
  • California
  • Florida
  • Kansas
  • Maine
  • New York
  • Oklahoma
  • Texas
  • Utah

Depending on where you’re located, you may not be able to charge a surcharge on credit card transactions. However, some merchants may choose to offer a cash discount as an incentive for customers to choose cash as their payment method, another strategy to help avoid merchant fees associated with credit card purchases.

Special Considerations by State for Credit Card Surcharging

There are two states with surcharging laws that require specific disclosures: Maine and New York. In these states, merchants are required to post the cost of paying with cash and the cost of paying with a card.

As mentioned earlier, merchants cannot make a profit on surcharging and there is a maximum charge of 4 percent. There is one exception to this rule, where in Colorado the maximum surcharge amount is either 2 percent or the merchant discount fee (what the merchant actually pays for processing).

As new bills are introduced to allow for credit card surcharging, these special considerations may change and will continue to vary state-by-state. As such, it’s important for merchants to stay tuned in to these changes and work with their payment processing partner to maintain compliance.

Why are Businesses Opting to Implement Surcharging?

Implementing surcharging passes the credit card processing fees to the cardholder and is a strategy to maximize revenue and increase savings for the business. Doing so can save the business thousands of dollars in payment processing fees annually, and because the surcharge fees are relatively small for the customer, they usually have little impact on their purchasing decision.

Due to the cost of accepting some modes of payment, small businesses often selectively choose the forms of payment they’ll accept. This reduces the merchant fees paid, by not accepting card brands with higher interchange rates.

However, accepting all major card brands and popular payment types is important for business growth and providing a positive customer experience. Implementing surcharging is one way for small businesses to accept more payment types from more card issuers, while mitigating some of the costs associated with credit card processing.

Relatedly, when implementing surcharging, the rate must be applied consistently across the card brands.

How Should Merchants Implement Surcharging?

In addition to some specific rules around surcharging state-by-state, the various card brands have surcharge rules that merchants must meet if implementing surcharging.

For example, Visa and Mastercard require retailers to register to surcharge with the payment network and display a disclosure about the surcharge in-store signage at the point of sale, online, and/or on the customer’s receipt.

Because of these complexities, it’s vital to have a 100% surcharge-compliant payment platform like Stax that can help your business follow best practices.

When implementing credit card surcharging, merchants are well-advised to err on the side of transparency and communication with their customers. Since the costs of payment processing are passed on to the customers, being communicative about these practices will help avoid a negative customer experience.

Prior to implementation, merchants should do research into the most popular payment types and have a strong baseline for the merchant fees paid and whether surcharging will help or hinder growth overall. This data will help determine the right rate for surcharging to offset costs while keeping the customer-paid rate to a minimum.

And as mentioned above, choose a payment platform that ensures you’re staying compliant with the latest surcharging laws. With Stax, you can legally—seamlessly—pass on 100% of credit card fees for both in-store and online payment transactions. Stax’s technology complies with all surcharging regulations so all your legal bases are covered.

Choosing Your Payment Processor

Not all payment processing platforms are equal—between interchange markups, annual fees, and the need to accept all forms of payment, considerations should be made to find the right partner.

Payment processors are starting to offer the ability to surcharge, but it’s important to be aware of how this is facilitated with the card brands, how they can control that only credit cards and not debit cards are surcharged, and how compliance is maintained.

For a full list of questions to consider, check out this guide on implementing a surcharging program.

Due to the varying rules and regulations around payment processing, merchants must evaluate options for credit card processors to ensure scalability, compliance, and fit for your business needs.

Stax offers 24/7 support, PCI compliant software and hardware, and is a resource to help your business navigate the payment processing landscape. Enabling surcharging is made simple with Stax’s all-in-one platform that gives merchants quick access to the information they need.

Stax offers several benefits to help keep your business compliant with state and federal laws. Some important features include automated credit card type detection to determine the correct rate for eligible transactions and a data and reporting dashboard so you can make informed decisions.

With 100% compliant software and hardware, and dedicated support, Stax can help you leverage our solution to maximize revenue and scale for growth.

Learn more about Stax and find out how you can get started quickly with surcharging today

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