Shopping around for competitive rates, asking for volume discounts and negotiating with your payment processor can also result in lower processing fees. View Frank Kehl's professional experience. was a reporter at The Points Guy, where he covered the intersection of credit card rewards and travel. Keep surcharges below 4% of the transaction, or the amount of the fees the merchant pays to the credit card companies, whichever is less. That said, if your product is unique, you have a strong customer following, or you have some sort of other special value proposition, youre less likely to feel pressure to conform to the same practices. There must be a sign displayed outside the store stating a surcharge exists for credit card purchases and a notification of the amount of the fee at the point of sale. In the airline industry, the practice of imposing fuel and other surcharges became so outrageous that the Department of Transportation outlawed the practice of adding any kind of surcharges to advertised airfares. Some of the guidelines include: While surcharge fees are legal under federal law, there are a few states and one jurisdiction that prohibit surcharges, according to the National Merchants Association. Opinions expressed here are authors alone. Square does allow for the practice of surcharging to help offset your Square fees, provided that you follow the guidelines outlined above. The surcharge fee can't be more than the cost of processing the credit card and is capped at 4% of the purchase price. In both cases, you must post both the cost of paying with cash and the cost of paying with a card using dollars and cents. Improve earnings, maximize rewards and track progress toward dream trips. Our partners cannot pay us to guarantee favorable reviews of their products or services. The percentage cant be more than the average processing cost paid by the merchant and is capped at 4%. Extra fees charged for using a credit card as payment. If a merchant has a long-term relationship with a customer or is an ongoing supplier for a customer, then the fee may be eliminated, explained Fortney. The vendors that appear on this list were chosen by subject matter experts on the basis of product quality, wide usage and availability, and positive reputation. We occasionally send out emails with special offers. Merchants are only allowed to recoup theiractual processing costs through surcharging, but under no circumstances can the surcharge exceed4%. This leaves Kansas, Colorado, Massachusetts, Connecticut and Puerto Rico as the only remaining places in the U.S. where it's still illegal for merchants to impose a credit card surcharge. The. A business is legally allowed to "surcharge" their customers who use a credit or debit card while still complying with New York State law, as long as certain conditions are met. In fact, since the COVID-19 pandemic many merchants are now only accepting credit and debit cards and they're not accepting cash. Surcharges are legal in most states, but there are rules that must be followed by the business. Betsie Van Der Meer / Taxi / Getty Images. "New Rules on Electronic Payments Lower Costs for Retailers. Credit card surcharges cannot exceed the actual cost to process a transaction and are capped at a maximum of 4% (2% in Colorado). Because convenience fees in shops are usually incorrectly labeled surcharge fees, lets examine legal surcharge limits. Compare features and pricing from our top payment picks. Many or all of the products featured here are from our partners who compensate us. Is It Legal for Stores to Charge Extra if You Pay With a Credit Card. Its also important to note that the limitations on surcharging generally only apply to consumer businesses. By clicking "TRY IT", I agree to receive newsletters and promotions from Money and its partners. Credit Card Surcharge Laws By State Explained | LawPay Are Credit Card Surcharges Legal? A business adds this extra charge to the advertised price to help cover the cost of credit card processing fees. Convenience fees and surcharges are legal, as long as they stay under a certain percentage of the purchase price and arent assessed in a state that bans them. Prior to becoming a writer, Lisa worked as a loan officer, business analyst and freelance marketing consultant. That could be because: While its legal under federal law to add a surcharge to credit card transactions, somestatesprohibit the practice. These fees began to be passed on to consumers in 2013, following a class-action lawsuit that businesses and merchants brought against Visa and Mastercard in response to such costs. To find out if your score has been affected lately, click on your state now. But if you're in one of the 45 other states not listed above, this practice is legal and allowed. Federal government: Credit card surcharges are federally legal in the United States. The answer to this question will depend on both your customers and what your competitors are doing. For now, the takeaway is that you can incentivize cash-paying customers with a discount, as opposed to discouraging card payments by adding a fee. The laws in Connecticut, Massachusetts, and Puerto Rico do not allow merchants to impose surcharges. The surcharge fee cant be more than the specific processing cost paid by the merchant for that type of card and is capped at 4%. Identify a payment provider that best suits your needs. But at the same time, card surcharges can also ultimately deter sales and leave a bad impression on the consumer. Business owners have to pay credit card processing fees. Square in general has a huge ecosystem of products and services for small businesses, but that doesnt mean its the right fit for your business. Best Balance Transfer & 0% APR Credit Cards, NerdWallets Best Credit Card Tips for June 2023, Get more smart money moves straight to your inbox. Consumers are often unaware of these fees until. However, since 2017, federal courts have overturned all but a few states' and U.S . If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. Surcharges are an added cost of making purchases and can be as high as 4% depending on the merchant and the credit card being used. If you plan to implement surcharges, keep in mind that Visa, Mastercard, and Discover require your point of sale system to include the surcharge as a line item (although there are no rules as to the invoice wording for adding a credit card fee). Whether you're looking to save money on processing or to get approved for a merchant account, PaymentCloud can help. NerdWallet's cheapest credit card processing companies. Adding a credit card surcharge is currently legal in all but two states and one United States territory. However, before you make a decision for your business, there are other considerations to take into account. Would Credit Card Surcharges Benefit Your Business? When evaluating offers, please review the financial institutions Terms and Conditions. However, the sample signage is specific to Visa surcharges and doesnt mention any other card brands. That surcharge structure allows merchants to add fees as high as 4% to consumer transactionsthough the exact amount charged varies from business to business and based on the specific type of card being used to make the purchase. Any credit card points you earn will likely be negated by these fees, unless you are in the signup bonus period. Dorado, PR 00646, Metro Office Park Surcharging is sometimes called zero-fee or even free credit card processing. For example, STOP Fraud Colorado, the website for the Colorado Attorney General's Office, explains, "Under Colorado law, it is illegal for any merchant to impose a surcharge on a purchaser or lessee who elects to use a credit or charge card in lieu of payment by cash, check, or similar means." Square is a top choice for POS for any type of business. Consumers can show their disapproval of these fees by simply going to other competitors. In eight more states -- California, Florida, Kansas, Maine, New York, Oklahoma, Texas and Utah -- surcharges violate a state statute, but . Were firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. For example, the surcharge for all Visa cards would be the same percentage. Here is a list of our partners and here's how we make money. Instead of the merchant absorbing the interchange fee, the customer who uses a credit card pays the processing costs. Over the years she has had the opportunity to interact directly with consumers to conduct product research, gather insights and evaluate user experiences. "In 1985, California passed a law that prohibited merchants from adding a surcharge (an extra fee) when customers pay by credit card instead of cash. Product & company names, logos, and trademarks referred to on this site belong to their respective owners. However, there are limitations to how merchants impose these fees. Many or all of the products featured here are from our partners who compensate us. However, you can still offer a discount for customers who want to pay by cash or check instead. And more importantly, you won't earn any valuable points or cash back. All financial products, shopping products and services are presented without warranty. Just answer a few questions and we'll narrow the search for you. Which states allow credit card surcharges? And the increased popularity of rewards cards can push this business expense even higher. But they have to be a flat fee (say, $2 per transaction) rather than a . ", National Conference of State Legislatures. This field is for validation purposes and should be left unchanged. The good news is that while the legality of surcharges has been murky in the past, as of 2023, credit card surcharges are now legal in all U.S. states except for Connecticut and Massachusetts. A convenience fee is a charge incurred for the privilege of paying for something, with a payment method that would normally not be used for such a product. Credit Card Surcharge Laws by State: A Guide for AEC Pros Our opinions are our own. Colorado banned credit card surcharges until July 1, 2022. If you live in any of these states and are charged an illegal surcharge. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Knowing the new rules: Passing on credit card fees Thats because of the restrictions implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Merchant Class Settlement MasterCard Frequently Asked Questions. Are Credit Card Surcharges Illegal? Here's Everything You Need to Know This go-to guide on surcharging details what surcharges are, the legal requirements surrounding them, and whether (or not) your business should charge them. In other words, merchants cant profit from surcharges; they can only recoup baseline costs. Until recently, credit card surcharges had been illegal in 10 states and Puerto Rico. What are credit card surcharges and where are they legal? - Yahoo Finance For example, a higher surcharge percentage is applied to rewards cards because they typically have higher processing fees. For example, a higher surcharge percentage is applied to rewards cards because they typically have higher processing fees. Square is a top choice for POS for any type of business.