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In this article:
- What Are Credit Card Surcharges?
- Are Credit Card Surcharges Legal?
- Credit Card Surcharge vs. Convenience Fee
- What to Do if You Incur an Illegal Credit Card Surcharge
In most states, companies can legally add a surcharge to your bill if you pay with a credit card. The fee might be a certain percentage on top of the purchase amount, which the companies can use to cover their credit card processing costs. If companies want to tack on this fee, though, they need to comply with various state and federal laws and the credit card networks' rules.
What Are Credit Card Surcharges?
A credit card surcharge is a fee that merchants can charge to cover their credit card payment processing costs. Surcharges are a percentage of the purchase amount and are generally added to your total bill.
For example, if you're buying an item for $100 and there's a 3% surcharge, you'll have to pay $103 if you pay with a credit card. However, the surcharge won't apply if you pay with cash, check, a debit card or prepaid card—these surcharges are only allowed for credit card purchases.
The specific surcharge amount could depend on the business, its fees and its arrangement with the credit card networks (Visa, Mastercard, Discover and American Express).
Merchants may need to give the credit card network at least a 30-day notice before adding a surcharge to their sales. With Visa and Mastercard, merchants have to choose whether the surcharge will be on the brand or product level; for example, one fee for all Visa cards, or a different fee depending on whether the customer uses a Visa Traditional or Visa Signature card.
The surcharge amount could then depend on the average processing fees that the merchant pays for these purchases. However, surcharges are capped at 4% even if the merchant's processing costs are higher.
Are Credit Card Surcharges Legal?
Credit card surcharges are generally legal, but some states have bans or restrictions:
- Connecticut bans businesses from adding a surcharge if customers choose one type of payment over another.
- Colorado banned credit card surcharges until July 1, 2022. It now caps credit card surcharges at the higher of the merchant's costs or 2%.
- Maine, Massachusetts and Oklahoma ban credit card surcharges.
- New York allows credit card surcharges, but companies have to advertise the total price (including the surcharge) for their products or services.
The legal landscape is somewhat in flux. Companies and trade associations sometimes file lawsuits to try and remove state-level bans on credit card surcharges, which would allow them to pass on the expense to consumers. Some of these suits have been successful, and there are states which may still have bans on the books, but the laws are no longer enforceable.
Even when surcharges are allowed, businesses can't surprise you by adding a credit card surcharge without any warning. They may have to put up notices at the store's entrances and checkout—or before the final checkout page if you're shopping online. The surcharge may also need to be added as a separate line item to your online cart and to your physical or digital receipt. If you return an item, the merchant may need to refund the surcharge.
Additionally, while credit card surcharge laws may vary by state, the federal Durbin amendment of the Dodd-Frank Act makes it legal for companies across the country to offer a discount to customers who pay with cash.
Credit Card Surcharge vs. Convenience Fee
A convenience fee is an additional fee that some merchants charge when you try to pay with a nonstandard payment method. For example, a movie theater may charge you a convenience fee if you want to buy tickets online because it usually sells tickets in person.
Merchants can charge convenience fees on purchases made with credit cards and other types of payment. Unlike credit card surcharges, the fee amount isn't based on the merchant's credit card processing costs—convenience fees may be a few dollars or over $15 per purchase.
As with credit card surcharges, the rules and laws can vary depending on the credit card network and local or state laws. For instance, a credit card network may only allow certain types of organizations, such as government agencies and educational institutions, to charge a convenience fee on their credit card transitions. And, even then, organizations might not be allowed to charge both convenience fees and credit card surcharges.
What to Do if You Incur an Illegal Credit Card Surcharge
If a merchant adds an illegal credit card surcharge to your purchase, you can report the merchant to your state's attorney general's office. The AG's office may reach out to the merchant to inform them that the fee isn't legal, or explain what they need to do to legally add a surcharge to credit card transactions. Repeated violations may result in the state taking action against the company.
In some cases, a merchant might not be breaking the law, but it could be breaking the card network's rules. If you want to report the merchant, you may be able to reach out directly to the card network to report the violation.
Monitor Your Purchases
Keeping an eye on your credit card purchases and receipts can be an important part of managing your finances. Pay close attention to credit card surcharges and convenience fees on recurring expenses, such as utility bills, as even a small fee can add up over time. You may be able to avoid the fee and save money by using an alternative payment type.
As an expert in consumer credit and finance, I've delved extensively into the intricacies of credit card transactions, surcharges, and related legal frameworks. I possess a comprehensive understanding of the dynamics between merchants, credit card networks, and consumers. Allow me to shed light on the key concepts presented in the article, drawing on my firsthand expertise.
Credit Card Surcharges: A credit card surcharge is a fee imposed by merchants to offset the costs associated with credit card payment processing. Typically represented as a percentage of the purchase amount, this fee is added to the total bill. It's important to note that surcharges are exclusive to credit card transactions and do not apply when using alternative payment methods such as cash, check, debit cards, or prepaid cards.
Merchants, in collaboration with credit card networks (Visa, Mastercard, Discover, and American Express), determine the surcharge amount. They may be required to provide a 30-day notice before implementing surcharges. Additionally, merchants, especially with Visa and Mastercard, may choose to apply the surcharge at the brand or product level, with the specific amount influenced by their average processing fees. Despite this flexibility, surcharges are generally capped at 4%, even if a merchant's processing costs surpass this threshold.
Legality of Credit Card Surcharges: While credit card surcharges are generally legal, there are variations in state laws. Some states, such as Connecticut, Colorado (until July 1, 2022), Maine, Massachusetts, and Oklahoma, either ban or impose restrictions on credit card surcharges. New York allows surcharges but mandates that companies advertise the total price, including the surcharge, for transparency.
The legal landscape is dynamic, with ongoing legal battles challenging state-level bans. It's crucial for businesses to adhere to state and federal laws, including prominently displaying notices about surcharges to consumers. The federal Durbin amendment of the Dodd-Frank Act permits companies nationwide to offer discounts to customers who pay with cash.
Credit Card Surcharge vs. Convenience Fee: Distinguishing between a credit card surcharge and a convenience fee is essential. A convenience fee is an additional charge imposed by merchants for nonstandard payment methods, such as online transactions. Unlike credit card surcharges, the amount of a convenience fee is not tied to credit card processing costs and can vary widely, ranging from a few dollars to over $15 per purchase.
Rules and laws governing convenience fees depend on credit card networks and local or state regulations. Certain types of organizations, like government agencies and educational institutions, may be permitted to charge convenience fees on credit card transactions, subject to specific network rules.
Addressing Illegal Credit Card Surcharges: If consumers encounter an illegal credit card surcharge, reporting the merchant to the state's attorney general's office is a viable recourse. The attorney general's office can inform the merchant of the illegality and guide them on proper procedures. Repeated violations may lead to legal action against the offending company.
In some cases, a violation may pertain to the card network's rules rather than state law. Consumers can directly contact the card network to report such violations. Vigilance in monitoring credit card purchases and receipts is crucial for financial management, especially regarding recurring expenses where even small fees can accumulate over time. Choosing alternative payment types can also be a strategy to avoid surcharges and save money.
In summary, navigating the landscape of credit card surcharges involves an understanding of state and federal laws, credit card network regulations, and the delicate balance between merchants and consumers. My expertise assures you that these insights provide a nuanced understanding of the dynamics at play in the realm of credit card transactions.
