Surcharging: A State-by-State Guide

Aug 22, 2017 by Daniella Bourguetts

Every legacy payment method carries a transaction fee, but it is well-known that credit card companies have the highest and most volatile fees in the B2B payments market. With numbers that range from 2.5% to 4% per transaction, it’s no surprise that some businesses choose to surcharge and pass on those processing fees to their customers.

First, let’s discuss why surcharging may be a controversial topic in the payment industry: Surcharging is when a merchant adds a fee to a customer’s credit card transaction. This is done to compensate for the credit card processing/interchange fees businesses have to pay credit card companies for using their payment network.

Some credit cards have strict regulations on the subject. Consumer laws in some states prohibit surcharging altogether, meaning the legality of the practice varies on a state-to-state basis.

To help you sail through these methods of leaving behind card processing fees, we’ve put together an overview of surcharging and its legality across the country.

Consumer Alternatives for Surcharging

In a CardFellow Consumer survey, more than half of consumers (64.5%) said they would stop using credit cards if merchants added surcharges to their transaction, but there are other ways merchants can address this issue.

Some companies may have initiated a “zero-fee” card payment when the processing fee is automatically passed to the consumer. This is, in essence, surcharging, the only difference is that the processor will take care of that for the merchants.

As a way to incentivize the use of other payment alternatives, other companies choose to offer cash discounts, which consists of giving the payer a discount equivalent of the card processing fees if they choose to pay via other methods, debit or paper checks being the most popular.

These methods are designed to pass along the cost of credit card processing to the customer, either by adding that percentage automatically or deducting it from the price when a credit card is not used.

While these methods help cut down payment processing fees, the most significant difference between them is that while cash discounting is legal everywhere in the US, surcharging is not. Let’s take a look at the states and territories that prohibit surcharging.


What States Prohibit Surcharging

Over the last years, the number of states and jurisdictions that banned surcharging on credit card payments has diminished due to the laws that prohibited these practices being overturned by courts. As of February 2021, these states still keep their anti-surcharge laws, but are not enforced due to the current court ruling:

  • California
  • Florida
  • Maine
  • New York
  • Oklahoma
  • Texas
  • Utah

In a couple of these states, you still need additional disclosures to surcharge credit card processing fees: Maine and New York. In these cases, you’re required to post the cost of paying with cash and the one using a credit card, down to cents, on top of Visa, Mastercard, American Express, and Discover requirements.

The following lists of US territory and states don’t allow credit card surcharges:

  • Puerto Rico
  • Colorado
  • Connecticut
  • Kansas
  • Massachusetts

For businesses operating in the states listed above, surcharging may be illegal, but they can still offer discounts to incentivize their customers to transact outside the credit card networks.

One more thing that’s worth noting is that businesses cannot surcharge on prepaid or debit cards, only credit card payments, due to the restrictions implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Surcharging Best Practices

Investigate and comply with regulations

While most US states allow surcharging, it’s still a good idea to take a deep dive into local regulations and make sure your process still complies with them. Some credit card companies may have their own sets of rules, such as Visa, Mastercard, and Discovery. Reach out to your account manager or any customer service representative for more information on the matter.

Give Notice to Your Customers and Card Companies

This is particularly important if you did not apply surcharges in the past. This can be somewhat problematic to some customers, so make sure you break the news with enough time for them to prepare and keep an open communication line for any questions or negotiations.

You will also need to notify your Credit card company. To do so, make sure you schedule a call or send in an email to ask for the proper process to start surcharging. Some relevant points to discuss may be:

  • Do you need to disclose it to your customers?
  • Do you need to hand in a written notice for surcharging?
  • What is the correct process to avoid any legal problems?
  • Describe the complete procedures to install a surcharging process in your card payments

Provide Customers Payment Freedom

With Paystand, you can process payments from credit/debit cards and eCheck Processing quickly. You can prevent high credit card processing fees from cutting into your ROI by paying wholesale credit/debit card processing fees or encouraging your customers to pay via the Paystand Bank Network using our Payer Incentives Feature. The Paystand Bank Network is the only subscription-based, zero-fee payment network for B2B payments and it gives businesses the quickest, cheapest way to accept payments. Most businesses save 50% or more on the cost of receivables by switching, and with Payer Incentives now built into the network, businesses have an easy way to encourage customers to pay via no-cost methods.

If you want to know more about how you can leave credit card payment fees and issues behind, B2B Payments Platform one of our experts, and jump into the new era of B2B payments.