Payment Processing

Is It Legal to Charge My Customers a Credit Card Processing Fee?

Derek Abram
CEO of Prio
5 min read

Face it - we’re living in the future, and your customers expect to be able to pay in one tap. In fact, The Global Brand Simplicity Index has found that 76% of customers are more likely to recommend a brand that provides simpler experiences and communications. That preference for simplicity carries into every area - especially payments. So how do you handle the fact that convenience comes with cost? Credit card processing fees take a huge chunk out of merchants’ profit margins - especially if you’re a small businesses or your margins are already thin. The good news is, you can legally pass those fees on to your customers (in a process called surcharging)- but only if you do it right, or you risk running into trouble.

It’s not the surcharge; it’s the way you surcharge.

Let’s get this out of the way: If you’re a small business, you need to pass credit card fees on to your customers, and most of your customers will be understanding about that fact - as long as you communicate well. You are legally required to notify your customers in clear signage, at the register, that credit card payments will incur a fee, but there are good and bad ways to do that.

Rather than “We charge a convenience fee for using a credit card,” we suggest something like: “Our small business passes on a small surcharge for credit card transactions - just enough to cover our costs.” Reminding your customers that you’re a small local business and that you aren’t trying to make a profit on your surcharging (which is actually illegal) is a good start.

Requirements for surcharging:

It’s important to start with your basics in place. A number of companies will help you set up a safe surcharging process - just make sure you find one that can handle the technical requirements of passing only the exact fee on to your customers. Here are the essentials to have in place before you begin passing on credit card fees:

  1. Post notices. You need them at your store entrance, at the point of sale, and on the Checkout page of your website.
  2. Don’t overcharge. Surcharges in most states are capped at 3% (2% in Colorado), but the safest way to handle surcharges is to only pass on the exact amount of your fees, which is currently allowed (even if it exceeds the 3%/2% cap) in every state except Connecticut and Massachusetts.
  3. Notify the credit card association and your merchant services provider. This notification has to be sent in writing at least 30 days before you start surcharging.
  4. List surcharges separately on receipts. Your customers will appreciate your transparency, and it’s also the law to list surcharges as a separate line item.
  5. Make sure your surcharge process is accurate. Most credit card associations require that you include the surcharge in the network authorization request and settlement. Visa and Mastercard don’t let you mix-and-match brand-level surcharges and product-level surcharges. Make sure your payment gateway or credit card processor is programmed to handle credit card surcharges accurately. You also can’t surcharge on debit cards - only credit cards - even if the debit card is run as credit. (Fortunately, most debit card processing fees are capped at a much lower total than credit card processing fees.)

What about differing state laws for surcharging?

A federal court case in 2018 set the legal precedent that would render most state-level anti-surcharging laws unenforceable. Currently, Massachusetts and Connecticut are the only states in which credit card fees can not be passed on to customers. The safest way to make sure your bases are covered for surcharging on credit card sales in the other 48 states is to never charge more than the exact amount of your processing costs when you surcharge. Charging a flat fee or percentage can get you in trouble in states that only allow flat fees up to a certain percent, and even accidentally overcharging (i.e. making a profit) when surcharging is always a bad idea. 

Is there a way around credit card fees entirely?

Sometimes, you’re going to run into a customer who just doesn’t want to pay a surcharge. The key is to offer them an alternative that’s equally convenient. There are a couple of options businesses can offer in place of credit card payments:

  1. Cash pay: 
  • Cons: Less convenient.
  • Pros: Cash pay discount.

In an increasingly cashless society, cash pay options are declining in popularity, but offering a cash pay discount can help offset the inconvenience of paying in cash for customers who don’t want to pay a credit card surcharge.

  1. Checks:
  • Cons: Less convenient and less secure.
  • Pros: Customers can make very large payments with no fees.

Checks have fallen out of popularity as a payment method at most businesses because of rampant check fraud, including the risk of check payments being delivered and then canceled. Checks are an inconvenient and slow form of payment at register transactions, but are still used where a record of payment is necessary and where the credit card fees for a high-dollar transaction would be prohibitively high.

  1.  One-tap bank payments:
  • Cons: Short setup required.
  • Pros: As convenient and fast as credit cards, once setup is complete, with no surcharges necessary.

Best for high-value, high-relationship transactions, one-tap bank payments help both customers and the businesses they love save money on credit card fees.

Get the Best of Both Worlds - Accurate Credit Card Surcharging and One-Tap Bank Payments - with Prio

We built Prio to help merchants avoid high credit card processing fees while still providing the convenience customers expect. We figured out how to make bank-to-bank transfers easier and faster than a credit card swipe, and we nailed accurate surcharging so you can pass through only the exact amount of your credit card fees, keeping your customers happy and your surcharging transparent. Prio is your simple, seamless payments solution - every customer, every dollar amount, every transaction - to help you pay zero credit card fees.

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