Surcharging: A State-by-State Guide

Nov 27, 2023 by Zazil Martinez

Note: This article is for informational purposes only and does not constitute legal advice. Paystand offers several methods to help offset or eliminate transaction fees. Surcharging is not one of those methods. 


Can businesses surcharge customers for credit card payments to compensate for processing fees? The broad answer is "most of the time."

Surcharging is legal in most U.S. states but prohibited or restricted in a few. Learn some surcharging best practices, such as investigating and following regulations and giving notice to customers and card companies.

Most legacy payment methods carry a transaction fee. However, credit card companies have the most volatile fees in the B2B payments market. Ranging from 2.5% to 4% per transaction, some businesses pass those processing fees to customers.

But why is surcharging so controversial in the payment industry? Surcharging is when a merchant adds a fee to a customer's credit card transaction. This compensates for the credit card processing/interchange fees businesses pay to credit card companies for using their payment network.

Some credit cards have strict regulations on the subject. Some states' consumer protection laws prohibit surcharging altogether, meaning the practice's legality varies from state to state.

To help you leave card processing fees behind, we've compiled an overview of surcharging and its legality across the country.

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What is considered a surcharge, and how do they affect payments?

A surcharge is a merchant's fee passed on to the end consumers for credit card transactions. While a common strategy to offset expensive card processing fees, it isn't necessarily the most favored one. A study found that 71% of consumers will avoid a merchant that uses credit card surcharging.

But customers don't always leave – they look for different payment options.

In a CardFellow Consumer survey, 64.5% of respondents said they would stop using credit cards if merchants added surcharges to their transactions. In other words, it's possible to retain customers if you offer an alternative to a credit card and the processing fee.

Different companies offer discounts to incentivize other payment alternatives. These include a discount equivalent to the card processing fees if they choose other payment methods, such as debit or paper checks. In this cash discounting method, the merchant absorbs the payment processing fee for the affordable payment options. This “zero-fee” strategy appeals to consumers who prefer a payment option without fees.

While this can help cut down payment processing fees, the most significant difference is that while cash discounting is legal everywhere in the U.S., surcharging is not. Let's take a look at the states and territories that prohibit surcharging.

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Are credit card surcharges legal in the United States?

Over the last few years, the number of states and jurisdictions that banned surcharging on credit card payments has diminished due to legal challenges. As of February 2021, the following states have anti-surcharge laws that are not enforced due to a current court ruling:

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

Additional disclosures to surcharges are required in Maine and New York. In these states, you must disclose the cost of paying with cash compared to the cost of using a credit card in addition to any requirements imposed by the credit card companies. 

Credit card surcharging bans have been lifted in some states over the past few years. Colorado is one example, which now allows merchants to surcharge a credit card payment up to 2%.

The following states don't allow credit card surcharges:

  • Connecticut
  • Massachusetts

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


What are the Best Practices for Surcharging?


Investigate and follow regulations

While most U.S. states allow surcharging, consulting local regulations is a good idea. Credit card companies–Visa, American Express, Mastercard, and Discover–also each handle surcharging differently. Contact your account manager or any customer service representative for more information.


Give Notice to Your Customers and Card Companies

This is particularly important if you did not apply surcharges in the past. Make sure to notify them so they can 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 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.

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The Paystand Alternative to Surcharging

Customers don't like surcharges, but they do love multiple payment options. Combining a zero-fee strategy with alternative payment methods enables you to boost customer satisfaction without taking on the burden of credit card processing fees.

And a versatile, easy-to-use payment solution can help you streamline this process for your AR team.

With Paystand, you can provide multiple payment options, with and without transaction fees. Prevent high credit card processing fees from cutting into your ROI by encouraging 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. It gives businesses the quickest, cheapest way to accept payments. Most companies save 50% or more on the cost of receivables by switching to our extensive network. With Payer Incentives now built into the network, businesses can provide customers with no-cost payment options.

If you want to know how to leave transaction fees and issues behind, contact one of our experts and jump into the new era of B2B payments.