What is a Credit Card Surcharge?

Credit card, coins and money on the table in reference to credit card surcharge

When you pay for goods or services using a credit card, the merchant is charged a “swipe fee” or “interchange fee” by the credit card company. The fee is often a percentage (usually 1.5%-3.5%) of the amount you paid for the goods or services. Some merchants may choose to pass this fee onto the consumer by adding a surcharge to the purchase price. Major credit card companies have rules that limit the amount a merchant can add as a surcharge (usually 4%). Essentially, credit card companies prohibit merchants from using surcharges to profit off of credit card transactions. Merchants can recoup the charge imposed by the credit card company, but no more. Visa requires all businesses that impose a card surcharge to give consumers at least 30 days written notice. Most credit card companies prohibit merchants from surcharging debit card transactions.

Are Credit Card Surcharges Legal?

Some states have laws that prohibit credit card surcharges. Florida has one such law remaining on the books (Florida Statute 501.0117), but it was held unconstitutional in a 2015 federal court case. A 2018 New York case, along with several others throughout the U.S., leaves only four states (CO, KS, MA, CT) and one territory (PR) that explicitly ban credit card surcharges. Don’t confuse surcharges with convenience fees, which can legally be applied to both credit and debit cards for over-the-phone or online transactions. 

What is a Credit Card Surcharge Carry Forward?

To “carry forward” the cost of the surcharge to the consumer, Florida requires that the act of charging the surcharge be disclosed to consumers. Not doing so constitutes an unfair or deceptive trade practice. For online transactions, the disclosure requirement can be met by the merchant stating how much of the total purchase price is dedicated to the surcharge. For in-person transactions, the disclosure requirement can be met by the merchant having signs at the point of entry of their brick-and-mortar store and on the customer’s receipt.

Should My Business Implement A Credit Card Surcharge Carry Forward Policy?

Credit card surcharging is increasing in popularity as court decisions and legislative changes have made the process easier and confirmed its legality. Many merchants, facing unprecedented losses of business due to the COVID-19 pandemic, have begun passing on their credit card surcharge to customers.* Some merchants label the practice a “pandemic recovery fee.” Nonetheless, business owners should be cautious when implementing a credit card surcharge. You could potentially lose customers, especially if your competitors are larger companies that don’t carry forward the surcharge. The few dollars you recoup may cost you much more in the form of disgruntled customers. If your business provides a unique value proposition or has a loyal customer base, carrying forward your credit card surcharges may be an effective way to lower your operating expenses. Increasingly, businesses are partnering with low- or zero-fee processing companies to address pesky surcharges. 

What About Cash Discounts?

Merchants have always had the option to offer a cash discount on the advertised price. The trick is that the advertised price has to include credit card fees from the beginning. The psychology of this subtle change in framing a dual price product or service can be powerful. Customers generally react negatively to added fees, but positively to cash discounts. However, some customers may erroneously think that cash-preferring businesses are evading taxes. 

*In March 2021, Visa and Mastercard announced that they would delay increasing interchange fees for another year due to the pandemic.

EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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Eric Gros-Dubois

Eric P. Gros-Dubois founded EPGD Business Law in 2013 and is the current head of the firm’s corporate, estate planning, and tax practice, and manages the firm’s Washington D.C. office. With a JD and MBA, and a specialization in finance, Eric is able to step back and view the legal world through a commercial lens while also acting as a trusted business advisor for his clients. He does his best to be solutions oriented, and tries to think like a business owner, not just a lawyer.


*The following comments are not intended to be treated as legal advice. The answer to your question is limited to the basic facts presented. Additional details may heavily alter our assessment and change the answer provided. For a more thorough review of your question please contact our office for a consultation.

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