What is the maximum credit card surcharge? The changes occurred in response to the class-action suit settlement. In the United States, credit card convenience fees are legal. Check Visa's full guide to fees for more on how these fees vary by industry. ", Mastercard. Terms apply to the offers listed on this page. New York's Law on Surcharging Credit Card Users - SCOLARO The answer depends on where you live. Surcharges are legal, but businesses can't hide them from you. The laws in Connecticut, Massachusetts, and Puerto Rico do not allow merchants to impose surcharges. Finally, you need to ensure that your payment gateway or processing equipment, as appropriate, is reprogrammed to accurately record the surcharges in accordance with the card network requirements. If your payment processing provider is doing any of these six things, it's probably time to switch. Surcharging is the practice of adding a small fee to a credit card transaction to cover the merchants costs for processing the payment. For instance, Visa requires all businesses that impose a card surcharge to give consumers written notice at least 30 days in advance. Copyright 2023 Merchant Maverick. So here's where consumer surcharges come into play. Currently, ten states have laws prohibiting credit card surcharges. Its also important to note that the limitations on surcharging generally only apply to consumer businesses. 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. The surcharge fee can't be more than the cost of processing the credit card and is capped at 4% of the purchase price. However, this does not influence our evaluations. 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. Can A Business Charge For Using A Credit Card? | Bankrate Are Credit Card Surcharges Legal? - Zenti In some states, retailers can't add surcharges or convenience fees. You might have even wondered if credit card surcharges in which customers are charged an extra 3% or so when paying by credit card are even legal. It wasnt too long ago that we saw a similar situation with merchants charging extra. However, sometimes using a credit card may cost more than the benefits provided. 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. Well also discuss the limits that apply to the practice and whether it will be a good choice for your business. Sign up with a provider directly on their website. He is a retired Air Force officer and a former practicing attorney. The primary disadvantage of surcharging is that it can result in lost sales and lost customers by making it more expensive to use a credit card. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. This verdict, along with several others throughout the U.S., has ultimately left only four states and one territory that explicitly make it illegal to impose an extra fee for using a credit card: However, businesses must still conform to certain requirements, depending on the state, including full transparency of surcharges and displaying a notice at the point of sale -- whether it's a brick-and-mortar or online merchant. Now that weve covered the core rules, lets take a closer look at some of the common questions that come up with surcharge processing, from how much you can charge to who you need to contact. Credit card processing fees eat into the profits of every small business. 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. Another disadvantage is the need to comply with all applicable state and federal laws pertaining to surcharging and credit card association policies that cover the practice. Editorial disclaimer: Opinions expressed here are the authors alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. NerdWallet's cheapest credit card processing companies. Visa has a resource page for merchants who plan to surcharge their credit card transactions. These minimums can't be more than $10, and the minimum can't be set higher than what other merchants in the same card network use. Debit Card Minimums: Merchant Rules and Rights, POS Charges and Fees: Point-of-Sale Overview, How Credit Card Companies Make Money: Fees and Interest. Fortune Recommends is editorially independent. So before you decide to implement a surcharge, you should check that your existing processing setup supports it. Understandably, Visa, for example, officially opposes surcharging as a practice, because it penalizes cardholders from using their preferred method of payment. It costs a retailer to accept a credit card transaction, so if you want to help out a retailer, consider using another form of payment like cash. 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. For example, Visa and Mastercard require 30 days' written notice be given to them and your payment processor before initiating surcharges. However, your account representative (or anyone working in the customer service department if you dont have a dedicated representative) should be able to tell you to whom you should direct that request. If a business is blatantly breaking the rules and you want to take meaningful action, you can report the business to credit card companies. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. The credit card offers that appear on the website are from credit card companies from which ThePointsGuy.com receives compensation. Merchant, Beware: That Surcharge May Be Illegal | JD Supra A business adds this extra charge to the advertised price to help cover the cost of credit card processing fees. Surcharge prohibition laws in several states have been challenged in . Some California businesses, but not all, are exempt from surcharge ban Consumer rights: payment surcharges - GOV.UK The surcharge percentage is different based on the type of card. Would Credit Card Surcharges Benefit Your Business? 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. Retailers can also require a minimum purchase amount when you use credit cards. If you've come across a business requiring a credit card surcharge or in our COVID-19 era, a pandemic recovery fee, you're far from alone. We may be compensated if you click this ad. A cash discount is a reduction in price offered by a business to customers who pay with physical cash instead of cards or digital wallets. Credit Card Surcharge Laws by State: A Guide for AEC Pros However, the sample signage is specific to Visa surcharges and doesnt mention any other card brands. This form is for feedback only. (Note that this doesnt apply to discouraging card use over other payment methods, such as cash, paper check, echeck/ACH, or debit card.) One -- but certainly not the only -- major way a company such as Visa generates revenue is through merchant fees, also called interchange fees. Keep surcharges below 4% of the transaction, or the amount of the fees the merchant pays to the credit card companies, whichever is less. No. 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. What Happens When a Merchant Breaks the Rules? Businesses that choose to add surcharges are required to follow protocols to ensure full transparency. Additionally, each credit card company has its own rules that businesses must abide by as part of the merchant agreement. Youll want to verify that youre compliant with each states credit card surcharge laws as well. Keep up with your favorite financial topics on NerdWallet. While adding surcharges to the cost of a purchase is now legal in nearly all states, businesses and merchants must follow rules regarding how such fees are implemented. The fees are legal, but you must first be alerted to them no surprises allowed. Pre-qualified offers are not binding. Other costs include real estate, energy, labor, taxes, insurance, raw materials and necessary equipment. Our opinions are our own. He holds a Bachelor of Arts in communications and a Master of Arts in anthropology. That includes the above five states. There will always be a slight difference that cant be reconciled. 7 calle 1, Suite 204 She has over 20 years of diverse experience in finance, lending and personal taxes. Credit Card Surcharge Guide For Merchants: 2023 Laws & Rules The surcharge notice must appear on the businesss homepage for online transactions. All but a few states now allow the practice, making it a viable option for most small business owners in the US. Report violations by calling your card issuer (using the number on the back of your card) or submit a complaint online. What are credit card surcharges and where are they legal? - Fortune This reality caused a significant spike in the number of credit card transactions taking place in the United States. Product & company names, logos, and trademarks referred to on this site belong to their respective owners. Is It Time To Switch Credit Card Processors? You can also avoid these fees by shopping around and finding out in advance whether a merchant implements surcharges. Generally, a charge incurred at a store is a surcharge, although it may be incorrectly labeled as a convenience fee. This information may be different than what you see when you visit a financial institution, service provider or specific products site. Under Visa and Mastercard, retailers are required to register the surcharge with the payment network. While the 2013 settlement allows merchants to legally assess surcharges for credit card use in most states, the card networks strongly discourage it. Identify a payment provider that best suits your needs. All Rights Reserved. Laws also vary by state. FORTUNE may receive compensation for some links to products and services on this website. Nonetheless, the question remains: Should you add a surcharge? Cash discounts are also legal throughout the U.S. MORE: NerdWallet's cheapest credit card processing companies. NerdWallet's top payment processing companies. However, there are specific rules that a business needs to follow when using surcharges. "New Rules on Electronic Payments Lower Costs for Retailers. A business can offer a discount to customers who pay with cash to reduce the number of card transactions. Our partners compensate us. Read more. Product level surcharge. All feedback, positive or negative, helps us to improve the way we help small businesses. A surcharge is a small fee that is added to the cost of a transaction if the customer chooses to pay with a credit card. By Any Other Name: Even if Legal, a Surcharge Is Still a Surcharge A U.S. Supreme Court ruling in 2017 protected surcharges as a form of free speech from merchants. (Antonio Diaz/stock.adobe.com) This story idea came from audience . The short answer is yes, it is legal for a merchant to impose a surcharge. If youre making a significant purchase, its important to factor this expense into your overall cost. You might have even wondered if credit card surcharges in which customers are charged an extra 3% or so when paying by credit card are even legal. States not formally approving of the changes are MA, ME, CT, CO and OK, but expect to soon. . Lead Writer | Personal finance, lending, personal taxes. Credit Card Surcharge Rules & Fees for Merchants | Mastercard Disclaimer: Merchant Maverick aims to provide accurate and up-to-date information to assist you in your research. This information may be different than what you see when you visit a financial institution, service provider or specific products site. MORE: NerdWallet's top payment processing companies. The surcharge is often a percentage of the overall purchase cost and can range from 1% to 4%. Each of these card brands has set its own guidelines for merchants wanting to add surcharges for credit cards which means you should meet all of the applicable requirements before you get started. According to Visa, these states include: However, there is ongoing litigation in some states that affects surcharge rules. Today, I'll walk through why these pesky fees are in place at many businesses, if they're even legal to begin with and whether you should still pay with a credit card the next you come across one. You Can't Meet Your Minimum Payments. Merchant Mavericks ratings are editorial in nature, and are not aggregated from user reviews. Here are the five states where it's illegal: Colorado, Connecticut, Kansas, Maine and Massachusetts. But of course, in an increasingly cash-free world, your other payment options are rather limited. While a card surcharge of 1-2% may be worth the hit considering that TPG values some points at up to 2 cents apiece, the economics quickly doesn't make sense if fees are significantly more than that. Instead of the merchant having to absorb this expense, the customer who chooses to pay by credit card pays for the processing costs that do not apply to other payment methods. NerdWallet Compare, Inc. NMLS ID# 1617539, NMLS Consumer Access|Licenses and Disclosures, California: California Finance Lender loans arranged pursuant to Department of Financial Protection and Innovation Finance Lenders License #60DBO-74812, Property and Casualty insurance services offered through NerdWallet Insurance Services, Inc. (CA resident license no. FORTUNE is a trademark of Fortune Media IP Limited, registered in the U.S. and other countries. Offer from the Motley Fool: If you have credit card debt, transferring it tothis top balance transfer cardcan allow you to pay 0% interest for a whopping 18 months! A classic example? Percentages range from 0.05% to more than 2%, and the flat fees are typically less than $0.25. 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. But some merchants were unofficially setting minimum purchase amounts. The surcharge percentage is different based on the type of card. Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. Can stores charge a fee for using a credit or debit card? 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. Transaction Fees: Credit Card Surcharging and Minimum Transaction If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. The fees. This site does not include all credit card companies or all available credit card offers. A U.S. Supreme Court ruling in 2017 protected surcharges as a form of free speech from merchants. This restriction was implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Surcharges can offset the expense of credit card processing fees, but there are limitations and legal guidelines. While you cant post a notice at your store entrance, you must include the disclosure in the checkout process, and the surcharge must be featured on the receipt. Use of this site constitutes acceptance of our Terms of Use and Privacy Policy | CA Notice at Collection and Privacy Notice| Do Not Sell/Share My Personal Information| Ad Choices Some businesses do have success with the zero-fee processing model. A business can apply the surcharge in one of two ways: Brand level surcharge. Ad For better financial health, know your Credit Score at all times. Merchants that choose to impose surcharges are required to notify Visa at least 30 days in advance of implementing the policy. OK92033) Property & Casualty Licenses, NerdWallet | 55 Hawthorne St. - 11th Floor, San Francisco, CA 94105. But it's important to do the math and consider if those rewards are worth it. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. To stay on top of your credit, click below and get the help you need now. Your Credit Score affects many aspects of your life. Merchant registration with Mastercard and acquirer. However, he must have been misinformed, as Square's website indicates that it charges just 2.65% for card present transactions like the one I was making. Is It Legal? Adding Surcharges to Credit Card Transactions Lisa is a small-business writer at NerdWallet and has more than 20 years of experience in banking and finance. A business can increase the overall pricing of products and services to cover card transaction fees. Those payment networks have signed agreements with merchants that prohibit such activity. For a long time these fees were not felt by consumers, but between the increased number of customers paying with a credit card and the rise in the cost of doing business in recent years, surcharges are becoming far more commonplace as a way to help merchants cover their own expenses.