Merchant fees quickly add up, leaving many business owners wondering, is it legal to surcharge on credit cards? If so, how much can you charge for credit card surcharges?
The short answer is yes. First introduced in 2013, credit card surcharging allows businesses to add a fee when customers choose to use credit cards. After all, merchants spend over $100 billion each year to accept card payments. However, the surcharges must remain below 4% of the transaction — or the amount you must pay to credit card companies, whichever is less.
Let’s dive deeper into some of the most common surcharging FAQs.
Is it legal to surcharge on credit cards?
On January 27, 2013, merchants could add surcharges to certain card transactions. In the United States, surcharging is allowed as long as you follow each card brand’s guidelines outlined in their merchant agreement. As of July 2021, Connecticut and Massachusetts enforce surcharging bans. Colorado recently lifted its surcharging ban, which takes effect on July 1, 2022.
Surcharging is permitted in both in-store and online environments.
Before you decide to add a surcharge, consider:
- How this will affect your customers’ experience
- What your competitors are doing
- The information you must disclose to your customer
- The cost of credit card payments and other forms of payment
Learn more about the benefits of implementing a surcharge program, especially concerning your bottom line.
Read more: What Is a Surcharge?
How are credit card surcharges calculated?
When calculating credit card surcharges, the most important thing is to remain compliant.
If you decide to add surcharges, this process is not as simple as adding 3%. Like sales tax, there are many rules and regulations. You need to be aware of governing bodies, including the federal and state government and card brand networks.
One of the main things to remember is — you cannot profit from a surcharge. You can never charge more than the cost of accepting a credit card, and these costs generally range between 1.5% and 4%.
There are two options for calculating credit card surcharges:
- Fixed percentage surcharge
- Variable percentage surcharge
A fixed percentage surcharge calculation is not are accurate as a variable percentage calculation, also referred to as dynamic surcharging.
The easiest option, which will allow you to recover the most fees, is to automate this process. NMA’s surcharge program ensures compliance and seamless integration.
Can I add a surcharge to both credit and debit card purchases?
No. As discussed above, surcharging applies to only credit card purchases under specific guidelines. The same applies if a customer chooses to complete a purchase with their debit card yet chooses “credit” on the point-of-sale (POS) terminal. This scenario does not apply.
How much can you charge for credit card surcharges? Are there limits?
Charging credit card surcharges will help you offset the cost of processing fees.
So, how much can you charge for credit card surcharges?
To remain compliant, know that limits do exist. Merchants in the United States can assess a surcharge on credit card payments if they do not exceed the merchant discount rate associated with the credit card charged. Surcharges cannot exceed 4%.
Can I surcharge certain credit card brands and not others?
Yes. You can opt to apply brand-specific surcharges, but you must be aware of the terms and conditions. For example, if you decide to add a surcharge for Visa credit cards only, you’ll need to follow the same terms and conditions as any equal or higher cost brand that has set surcharging limits.
Please note: If you plan on implementing surcharging, you must notify Visa and MasterCard at least 30 days prior.
Do I need to disclose surcharging to my customers?
Yes. If you decide to add a surcharge, your customers must be notified, and the surcharge dollar amount must be present on every receipt. This requires programming. If your business adds surcharges, you must post information at your business’ point-of-entry and POS. You may view surcharge signage examples here.
NMA is a merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company. For more information, visit us at our www.nationalmerchants.com or by calling (866) 509-7199.