The cost of accepting credit cards has been on the rise, leading many business owners to explore credit card surcharging as a way to pass on processing expenses to customers who choose to pay by credit card. In this comprehensive guide, we will delve into the current state laws and card association guidelines for surcharging, helping you determine whether implementing a surcharge policy is the right choice for your business.

Understanding Credit Card Surcharges

Credit card surcharging refers to the practice of adding a small fee to a credit card transaction to cover the merchant’s costs for processing the payment. Instead of absorbing these expenses, the merchant passes them on to customers who choose to pay by credit card. Surcharging is sometimes referred to as “zero-fee” or “free” credit card processing. Another related concept is cash discounting, where customers receive a discount equivalent to the cost of credit card processing if they pay in cash, by check, or with a debit card.

While both surcharging and cash discounting shift the burden of processing costs to the consumer, there is a key distinction. Surcharging adds the extra cost to the advertised price, while cash discounting deducts the cost from the advertised price when a non-credit card payment method is used. It’s worth noting that cash discounting is legal nationwide, whereas surcharging is prohibited in some states and territories.

Legal Considerations for Credit Card Surcharging

Before implementing a surcharge policy, it’s crucial to understand the legal landscape surrounding credit card surcharging. Laws regarding surcharging vary by state, so it’s important to check the regulations applicable to the states where your business operates. In recent years, many jurisdictions that previously prohibited surcharging have seen these laws overturned by court decisions.

As of early 2023, only two states and one US territory still prohibit credit card surcharging. Connecticut, Massachusetts, and Puerto Rico do not allow surcharges. However, some states have laws against surcharging that are unenforceable due to recent court decisions. These states include California, Florida, Kansas, Maine, New York, Oklahoma, Texas, and Utah.

If your business operates in a jurisdiction where surcharging is prohibited, you cannot impose a credit card surcharge. However, you can still offer a discount to customers who choose to pay by cash or check. It’s important to note that cash discounting is allowed in all states, regardless of their stance on credit card surcharging.

Limitations on Surcharging Credit Card Purchases

While surcharging is generally allowed, there are certain limitations to consider. One significant limitation is that surcharges can only be applied to credit card purchases, not prepaid or debit card transactions. Even transactions processed as signature debit are exempt from surcharging due to regulations implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In addition to these federal restrictions, two states, Maine and New York, require additional disclosures for surcharging credit card processing fees. Merchants in these states must display the cost of paying with cash and the cost of paying with a card in dollars and cents. Visa, Mastercard, American Express, and Discover also require merchants to post notifications at the point of sale and specify the surcharge amount.

It’s important to note that these limitations primarily apply to consumer businesses. Government agencies and educational institutions may have separate rules regarding surcharging, which may allow them to implement surcharges even in states that prohibit surcharging by consumer businesses.

Credit Card Surcharging Rules by Card Associations

Once you’ve determined that surcharging is legal in your state, you need to familiarize yourself with the guidelines set by the major card associations – Visa, Mastercard, American Express, and Discover. Each association has its own specific requirements that merchants must meet when adding surcharges for credit card transactions.

The first step is to notify the card association and your merchant services provider of your intent to implement surcharging. Written notice should be provided at least 30 days in advance, except for American Express, which does not require advance notice as long as all other rules are followed.

Surcharges are limited to the effective rate for credit card transactions, with a cap of 4% (2% in Colorado). Merchants must prominently display appropriate notices inside their stores and at the point of sale, or on their eCommerce websites. The surcharge amount should be included as a separate line item on receipts, as well as in network authorization requests and settlements.

When it comes to Visa and Mastercard, merchants can apply surcharges at the brand level (e.g., all Visa cards) or the product level (specific lines of cards), but not both simultaneously. It’s essential to ensure compliance with each association’s specific requirements and communicate your intent to surcharge to your merchant acquirer and payment gateway provider.

Best Practices for Implementing Credit Card Surcharging

Implementing a credit card surcharge policy requires careful planning and adherence to best practices. Here are some key considerations to keep in mind:

Notify Your Acquirer & Card Networks

To begin the process, reach out to your merchant account’s representative and provide a written notice of your intent to start surcharging. A phone call is not sufficient; written communication is necessary. Your account representative or customer service department will guide you on the appropriate channels to submit your request.

Provide Clear Notice to Customers

To ensure transparency, it’s important to inform your customers about the surcharge. Display notices at the entrance to your store and at the point of sale, specifying the surcharge rate and clarifying that the surcharge does not exceed your processing fees. Visa provides resources for merchants planning to surcharge, including sample signage that can be customized according to your needs.

For eCommerce transactions, include the disclosure during the checkout process and prominently feature the surcharge on the receipt.

Accurately Document Surcharges

Visa, Mastercard, and Discover require merchants to include the surcharge as a separate line item on receipts and report all surcharges to the processor and card networks. Ensure that your point-of-sale system supports this functionality and integrates with your payment gateway or processing equipment. If you use Square, note that it deducts the processing fee from the total transaction, making it challenging to perfectly offset fees with a surcharge.

Is Credit Card Surcharging Right for Your Business?

Deciding whether to implement a credit card surcharge policy requires careful consideration of your customers’ preferences and competitive landscape. While surcharging can help lower operating expenses, it may deter customers, particularly if you compete with major retailers or online marketplaces.

If your product or service has unique value propositions or a dedicated customer base, you may have more flexibility in implementing surcharges. However, losing customers due to surcharges could outweigh the benefits of cost savings. In such cases, it may be more beneficial to explore alternative payment processing options or negotiate better rates with your current payment processor.

Frequently Asked Questions About Credit Card Surcharges

Q: What are credit card surcharges? A: Credit card surcharges are small fees added to transactions when customers choose to pay with a credit card. These fees aim to cover the merchant’s costs for processing credit card payments.

Q: Is it legal to add a credit card surcharge? A: Credit card surcharging is legal in most states, with only a few exceptions. However, merchants must comply with surcharging requirements imposed by card associations and state laws.

Q: Which states allow credit card surcharges? A: As of 2023, credit card surcharging is allowed in most states. Only Connecticut, Massachusetts, and Puerto Rico currently prohibit surcharges. Several other states have laws against surcharging that are unenforceable due to court decisions.

Q: What is the maximum credit card surcharge? A: Surcharges cannot exceed the merchant’s actual processing costs and are capped at 4% (2% in Colorado). Providers that impose a flat 4% fee on all surcharged transactions may result in excessive charges.

Q: What is the difference between a surcharge and a convenience fee? A: A surcharge is tied to the actual cost of processing a credit card transaction, while a convenience fee is a fixed-rate fee added to a customer’s bill for using a credit card instead of an alternative payment method.

Q: How are credit card surcharges calculated? A: Credit card surcharges are calculated based on the actual cost of processing a transaction, up to the maximum allowed percentage. Merchants must ensure their payment systems accurately calculate and apply surcharges.

Q: What are the requirements for surcharging? A: Merchants must provide written notice to their acquirer and card networks at least 30 days in advance of implementing surcharges. They must also display notices at their stores or on their websites, include surcharges as separate line items on receipts, and comply with specific requirements set by each card association.

Q: What are the disadvantages of credit card surcharging? A: Credit card surcharging may lead to lost sales and customers who seek better deals elsewhere. Compliance with state and card association rules can also be complex.

Q: Does American Express allow surcharge fees? A: Yes, American Express allows surcharge fees. Merchants should refer to the American Express Merchant Reference Guide for specific rules and requirements.


Implementing a credit card surcharge policy can be a strategic move for businesses looking to manage rising processing costs. By understanding the legal landscape, adhering to card association guidelines, and following best practices, merchants can navigate the surcharging process successfully. However, it’s important to assess customer preferences and competitive factors before deciding whether surcharging is the right approach for your business.

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