Blog > Credit Card Surcharging: A State-by-State Legal Analysis

Credit Card Surcharging: A State-by-State Legal Analysis

By |Published On: July 6th, 2023|

As businesses strive to maintain profitability in the competitive commerce environment, surcharging is one strategy that’s garnered attention and controversy.

This article will dive into the legality of surcharging on state and federal levels to help merchants gain more insight into best practices and their impact on their businesses and consumers. It will also answer common questions, such as are credit card surcharges legal and is it illegal to surcharge debit cards.

What is credit card surcharging?

When you purchase with a credit card, the merchant’s financial institution processes the transaction and charges an interchange fee to the merchant for these services. However, the merchant isn’t always obligated to pay it. In some cases, merchants can pass these fees on to their customers as surcharges.

Surcharges are additional fees imposed on top of the cost of a product or service that can be charged as a specified amount or a percentage. Surcharges are commonly added to credit card transactions, utility bills, or transactions where the merchant is charged an interchange fee.

Merchants are prohibited from profiting from surcharges and can only charge the necessary amount to cover the cost of the interchange fee.

Surcharges are often confused with convenience fees since both can be applied to certain transactions, but there are some critical differences between the two.

What is credit card surcharging

What are the differences between convenience fees and surcharges?

Despite convenience fees and surcharges sharing several similarities, they differ in their purpose.

Convenience fees are added to the total amount of a transaction to provide convenient payment options to customers, often covering administrative costs, technological expenses, or third-party service fees.

For example, when customers order food online through a third-party delivery service, they’ll likely be charged a convenience fee for the convenience of browsing through menus, placing orders, and having meals delivered to their location. In this case, the convenience fee would cover the costs of delivery logistics and maintaining the platform.

Convenience fees are typically flat fees, meaning they won’t change based on a percentage of the transaction. Instead, they remain a set price added whenever alternative payment methods are used.

In contrast, surcharges can differ in price depending on the cost of the transaction. They can be fixed amounts but are often calculated as a percentage of the transaction value.

Surcharges are also associated with credit cards, whereas convenience fees tend to be associated with less traditional payment methods, including online payment platforms like Venmo and mobile wallets such as Apple Pay and Google Pay.

Surcharges are a topic of controversy since some consumers don’t feel they should have to cover processing costs. Considering this controversy, it’s important to be mindful of credit card surcharge rules and regulations.

Are credit card surcharges legal?

The permissibility of surcharging credit cards falls under the jurisdiction of individual states and card networks, as there are no federal restrictions on the practice. This means states can enact their own credit card surcharge laws as they see fit. Some states prohibit surcharging altogether, whereas others enforce various credit card surcharge regulations and restrictions.

In most states where surcharging practices are permitted, merchants must disclose their surcharging policies to customers. However, no federal regulations mandate the disclosure of surcharging amounts. Under the Expressions Hair Design vs. Schneiderman case, the Supreme Court ruled that requiring disclosure of surcharging amounts violates the first amendment and will therefore be left to individual states to determine their own disclosure practices. That said, most states that permit surcharging require this disclosure.

To understand credit card surcharge laws by state, businesses should consult their state legislature to stay up-to-date on updated credit card surcharge laws and restrictions, and they can also refer to this next section.

Credit card surcharge laws by state

Surcharging is legal in most states, with the exception of a few. Here is a complete list of states and jurisdictions that permit credit card surcharging:

Surcharge Legal States List Surcharge Illegal States List
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Rhode Island
South Carolina
South Dakota
West Virginia
Puerto Rico

While most states permit credit card surcharging, several state-level governments vary in the surcharging regulations they impose.

Special considerations regarding state surcharging policies

Since states can create their own restrictions on surcharging practices, some legislatures take disclosing this information very seriously.

Maine and New York have implemented laws requiring merchants to provide customers with surcharging policy information. Merchants must display the cost of paying with cash versus the cost of paying with a credit or debit card for customers to clearly understand any additional charges they may incur when using cards.

Since merchants are prohibited from making a profit from surcharging, there’s a limit to how much can be charged on any given surcharge. Although the average maximum amount in the U.S. is capped at 4%, Colorado merchants can charge either 2% or the total amount of the processing fee.

With regulations that differ from state to state, the legal landscape of credit card surcharging can be tricky to navigate. Debit card surcharging, on the other hand, carries more concrete restrictions.

Is it legal to surcharge debit cards?

If credit card surcharging is illegal in your state, you may now find yourself asking what the debit card surcharge law