Surcharging: A State-by-State Guide

Mar 16, 2023 by Zazil Martinez

Are businesses allowed to charge a surcharge to customers for credit card payments to compensate for credit card processing fees? Surcharging is legal in most U.S. states but prohibited in some. Learn some surcharging best practices, such as investigating and following regulations and giving notice to customers and card companies.

Every legacy payment method carries a transaction fee. But credit card companies have the highest and most volatile fees in the B2B payments market. With a range from 2.5% to 4% per transaction, some businesses charge and pass those processing fees to customers.

But why 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 that businesses pay to credit card companies for using their payment network.

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

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


Are merchants allowed to charge a surcharge?

In a CardFellow Consumer survey, 64.5% said they would stop using credit cards if merchants added surcharges to their transactions. But there are other ways merchants can address this issue.

Some companies have initiated a "zero-fee" card payment, passing the processing fee to the consumer. This is surcharging. The only difference is that the processor will handle that for the merchants.

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.

These methods pass along the cost of credit card processing to the customer by adding or deducting that percentage from the price for not using a credit card.

While these methods 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.


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 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

You need additional disclosures to surcharge credit card processing fees in Maine and New York. In these cases, you must 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 U.S. territories and states that don't allow credit card surcharges:

  • Puerto Rico
  • Colorado
  • Connecticut
  • Kansas
  • 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.

Businesses cannot surcharge on prepaid or debit cards, only credit card payments. This is due to the restrictions implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.


What are the Best Practices for Surcharging?

Investigate and follow regulations

While most U.S. states allow surcharging, diving into local regulations and ensuring your process complies with them is a good idea. Credit card companies have their own sets of rules, such as Visa, Mastercard, and Discovery. 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.

Free your Customers’ Payments

With Paystand, you can process payments from credit and debit cards and eCheck. Prevent high credit card processing fees from cutting into your ROI by paying wholesale 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. It gives businesses the quickest, cheapest way to accept payments. Most companies save 50% or more on the cost of receivables by switching. With Payer Incentives now built into the network, businesses can encourage customers to pay via no-cost methods.


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