are credit card surcharges legal

In our competitive consumerist world, surcharges and hidden payments are universally loathed. Another factor to consider is whether your competitors have surcharge programs. Offers may be subject to change without notice. It's worth noting that these surcharging laws are only applicable to credit card transactions and in fact, it's not legal to impose any additional surcharges on customers paying by other means and that includes debit cards and cheques. Some businesses do have success with the zero-fee processing model. For example, the surcharge for all Visa cards would be the same percentage. Yes. If a merchant has a long-term relationship with a customer or is an ongoing supplier for a customer, then the fee may be eliminated, explained Fortney. All feedback, positive or negative, helps us to improve the way we help small businesses. Once youve made sure that its legal to impose a surcharge in a given state, theres still a bit of legwork and research to be done. A convenience fee is a charge incurred for the privilege of paying for something, with a payment method that would normally not be used for such a product. Fortunately, the overall guidelines for the networks are mostly the same: Once youve read and understood the core credit card surcharge rules, theres still more work to do. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has adisclosure policy. While most states allow this practice, businesses must note these fees according to federal law. So how do we make money? Each of these card brands has set its own guidelines for merchants wanting to add surcharges for credit cards which means you should meet all of the applicable requirements before you get started. Square in general has a huge ecosystem of products and services for small businesses, but that doesnt mean its the right fit for your business. Landmark changes to the current credit card brand rules and state laws mean that businesses in 45 states are now able to pass on credit cards surcharges, which has long been standard practice for government and educational institutions. However, the site does say that surcharges are permitted when charged by state or local governments that accept credit cards. Your merchant services provider will reprogram your payment gateway or processing hardware (i.e., countertop terminal, point of sale (POS) system) to calculate and apply the surcharge to applicable transactions automatically. Retailers can also require a minimum purchase amount when you use credit cards. Depending on the state laws in your area, you may also be able to report the merchant to your states attorney general. Although the card networks often raise concerns about customer satisfaction and loyalty, customer acceptance is likely to vary based on an individual businesss relationship with its customers. If you're in a state where it's illegal to add surcharges to a customer's bill and you find that a business is breaking the law, you can contact your state's Attorney General's office to file a complaint. Sign up with a provider directly on their website. This field is for validation purposes and should be left unchanged. We love credit cards around here, especially those that provide our readers (and ourselves) with awesome benefits. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. These practices are particularly egregious in the rental car and telecommunications industries. One -- but certainly not the only -- major way a company such as Visa generates revenue is through merchant fees, also called interchange fees. The percentage cant be more than the average processing cost paid by the merchant and is capped at 4%. Is It Time To Switch Credit Card Processors? However, this does not influence our evaluations. You might have even wondered if credit card surcharges in which customers are charged an extra 3% or so when paying by credit card are even legal. This notice can be in the form of physical signs in a retail location or banners on the merchants website. Whether at your local restaurant or at a hotel across the country, TPG readers and staff have told me about their experiences with card surcharges and convenience fees. A cash discount is a reduction in price offered by a business to customers who pay with physical cash instead of cards or digital wallets. Report violations by calling your card issuer (using the number on the back of your card) or submit a complaint online. Shopping around for competitive rates, asking for volume discounts and negotiating with your payment processor can also result in lower processing fees. When a merchant intends to surcharge, they are offsetting the costs that they would be paying by applying a surcharge to the transaction. While you cant post a notice at your store entrance, you must include the disclosure in the checkout process, and the surcharge must be featured on the receipt. The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Its also important to note that the limitations on surcharging generally only apply to consumer businesses. When evaluating offers, please review the financial institutions Terms and Conditions. While for many years merchants grudgingly accepted card processing expenses as the cost of doing business, today, more and more business owners are turning to credit card surcharging as a way to pass those costs onto their customers who choose to pay by credit card. A lot of people ended up voting with their wallets.. A surcharge is the cost associated with using a credit card on a transaction. A business can offer a discount to customers who pay with cash to reduce the number of card transactions. Note that surcharging laws have been overturned by court decisions in several other states but are still on the books. A surcharge is a fee paid by a customer who chooses to use a credit card to purchase a good or service. A business can increase the overall pricing of products and services to cover card transaction fees. The surcharge fee cant be more than the specific processing cost paid by the merchant for that type of card and is capped at 4%. Over the years she has had the opportunity to interact directly with consumers to conduct product research, gather insights and evaluate user experiences. It's unclear why some merchants single out credit card fees as necessary for imposing a surcharge, although some merchants will add surcharges for energy, labor, health insurance and other costs. Were firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Merchant registration with Mastercard and acquirer. For instance, Visa requires all businesses that impose a card surcharge to give consumers written notice at least 30 days in advance. Here are the five states where it's illegal: Colorado, Connecticut, Kansas, Maine and Massachusetts. Ad For better financial health, know your Credit Score at all times. Along with all of the increased credit card usage, theres been an uptick in surchargeswhich are fees that payment processors and credit card companies charge merchants and retailers. In the past, retailers werent allowed to set minimums or add surcharges. We love credit cards around here, especially those that provide our readers (and ourselves) with awesome benefits. Notice of the surcharge must be given at the entrance of the business and at the point of sale. The surcharge percentage is different based on the type of card. A few states prohibit or limit the use of surcharges. We believe everyone should be able to make financial decisions with confidence. Should You Add A Credit Card Surcharge Policy? And all of the card networks cap surcharges at 4% of the transaction. Before becoming a Nerd in 2014, she worked as a tax accountant and freelance personal finance writer. Adding a surcharge fee to the sales price of credit card transactions may seem like a good solution. While both of these methods pass the cost of credit card processing onto the consumer, the only apparent difference is that with surcharging, the extra cost is added to the advertised price. Some retailers choose to add this fee to a customer's bill to help cover the cost of credit card processing fees that the business has to pay. For example, its common to be charged a convenience fee when you pay for college tuition or taxes with a credit card, instead of with a check or automatic withdrawal from your checking account. Credit card processing fees eat into the profits of every small business. Read our. Product level surcharge. If merchants decide to use credit card surcharges, they must: Surcharges are only allowed forcredit cardpurchasesnotdebit cardtransactions. If youre making a significant purchase, its important to factor this expense into your overall cost. Disclaimer: NerdWallet strives to keep its information accurate and up to date. For example, its common to be charged a convenience fee when you pay for college tuition or taxes with a credit card, instead of with a check or automatic withdrawal from your checking account. ", Federal Trade Commission. Find the right card for you. Others intentionally choose not to follow them. Opinions expressed here are authors alone. Clearly, if you're not paying with a rewards credit card, you're not going to earn points, miles or cash back. While surcharges may or may not be legal or within the rules of the payment network, there's a similar option that's always acceptable. Here is a list of our partners. We may earn affiliate revenue from links in this content. Credit card surcharges cannot exceed the actual cost to process a transaction and are capped at a maximum of 4% (2% in Colorado). Merchants struggling to stay ahead of rising costs have increasingly turned to credit card surcharging as a way to lower operating expenses and keep their businesses profitable. NCSL's experts are here to answer your questions and give you unbiased, comprehensive information as soon as you need it . The COVID-19 pandemic triggered a variety of changes in our daily lives, including a further shift away from using cash to pay for purchases and a greater reliance on contactless forms of payment such as credit cards and debit cards. Rick VanderKnyff leads the team responsible for expanding NerdWallet content to additional topics within personal finance. For the latest news, deals and points and miles tips, subscribe to The Points Guys daily email newsletter. As of early 2021, only Connecticut, Massachusetts, and Puerto Rico continue to prohibit surcharging. Advertiser Disclosure: Our unbiased reviews and content are supported in part by, Note that while there are somewhat complicated regulations about surcharging, a common loophole to offset processing costs is something called . However, he must have been misinformed, as Square's website indicates that it charges just 2.65% for card present transactions like the one I was making. The credit card offers that appear on the website are from credit card companies from which ThePointsGuy.com receives compensation. For debit cards and prepaid cards, surcharging is prohibitedeven when the card is run as a signature-based transaction without the PIN. The same surcharge percentage is applied to all cards under a brand. Where Does the Money for Credit Card Rewards Come From? Shopping around for competitive rates, asking for volume discounts and negotiating with your payment processor can also result in lower processing fees. PDF, 221 KB, 13 pages Details Payment surcharging is when a fee is charged for the use of a particular means of payment, such as a credit card. If you live in any of these states and are charged an illegal surcharge, report the retailer to the state attorney generals office. EDITORIAL DISCLOSURE: The advice, opinions, or rankings contained in this article are solely those of the Fortune Recommends editorial team. In her spare time, Erin reads voraciously and tries in vain to keep up with her two kids. In both cases, you must post both the cost of paying with cash and the cost of paying with a card using dollars and cents. BY Mia Taylor November 29, 2022, 10:09 AM PST Credit card surcharges are becoming more widespread. NerdWallet's top payment processing companies. Want all your POS hardware and software in one place? Note that you might be charged a 3% to 5% transfer fee up front . Merchants may now charge up to an additional 2.4 per cent to cover the interchange fees associated with credit card payments. Please refer to our Advertising Disclosure to learn more about how we earn compensation from affiliate partnerships and how we maintain our independent editorial integrity. Thats one reason our experts rate this card as a top pick to help get control of your debt. If youre on a tiered or flat-rate pricing plan, we encourage you to look for an interchange-plus pricing option, which is more affordable and transparent. "New Rules on Electronic Payments Lower Costs for Retailers. Just answer a few questions and we'll narrow the search for you. This structure is the basis of todays surcharge programs.. For example, you cant set a $5 limit for Visa and a $10 limit for Mastercard. In this article, well look at current state laws and card association guidelines for surcharging and what you need to do to start adding surcharges. In Maine, government entities can impose credit card surcharges. (Antonio Diaz/stock.adobe.com) This story idea came from audience . No. If your business operates in multiple states, you can still add a surcharge in states that allow the practice just not in the ones with bans. Our partners cannot pay us to guarantee favorable reviews of their products or services. The same surcharge percentage is applied to all cards under a brand. But some merchants were unofficially setting minimum purchase amounts. How To Remove Items From Your Credit Report, How To Boost Your Credit Card Approval Odds. Your California Privacy Rights/Privacy Policy. We may be compensated if you click this ad. How to Tell if a Credit Card's Annual Fee Is Worth It, A Couple of the Best Cash Back Credit Cards Are Getting Even Better Rewards, Money Group, LLC These fees range in cost depending on the card network but are typically around 1.3%-3.5% of the total transaction. Regulations are confusing for everybody, and some merchants innocently break the rules because they don't understand them. Our partners cannot pay us to guarantee favorable reviews of their products or services. That includes downloadable sample signage that business owners can post in both places. From a legal perspective, the prominent regulator on this topic is a state's attorney general and the Consumer Financial Protection Bureau (CFPB). A 2017 Supreme Court ruling protected the practice of surcharging for merchants under the first amendment. Colorado is the newest state to legalize surcharging and caps surcharge rates at 2%. Opinions expressed here are the authors alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities. Read The Ascent's full reviewfor free and apply in just 2 minutes. Sign up and well send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money. For example, a business that normally takes payments in person may charge a convenience fee for allowing a customer to pay over the phone. Colorado banned credit card surcharges until July 1, 2022. She is a FINRA Series 7, 63, and 66 license holder. It can help if you arent the only one charging your customers for credit card use. Identify a payment provider that best suits your needs. Laws also vary by state. Check Out Our Preferred Point of Sale Software . This information may be different than what you see when you visit a financial institution, service provider or specific products site. However, a recent court case in New York struck down its ban on credit card surcharges, permitting merchants to add these to your bill. Sign up today and get a free card reader! We believe everyone should be able to make financial decisions with confidence. FORTUNE is a trademark of Fortune Media IP Limited, registered in the U.S. and other countries. Customer acceptance, card network resistance and competitor practices should also be considered before moving forward with a surcharge program for your business. These include using cash instead of a credit card to make a purchase, or using a debit card, for which surcharges cannot be applied. If you happen to need a payment processor, be sure to take a look at our top recommended credit card processing companies for small businesses. Lead Writer | Personal finance, lending, personal taxes. Is It Legal for Stores to Charge Extra if You Pay With a Credit Card. Adding a credit card surcharge is currently legal in all but two states and one United States territory. A business can set a minimum transaction amount for credit card users. She loves numbers and aims to demystify data sets to help consumers improve their financial lives. Credit Card Surcharge Laws by State. Want all your POS hardware and software in one place? However, the sample signage is specific to Visa surcharges and doesnt mention any other card brands. In most cases, credit card surcharges are small. We havent gone back there since," said Donna Pairo, another TPG reader. Those practices were not necessarily illegal at the time, but they were a violation of the merchants agreement with their payment-processing services. Would Credit Card Surcharges Benefit Your Business? If your merchant fees are getting to be prohibitively high, you might want to consider finding a new processor instead of resorting to credit card surcharging. A credit card surcharge (sometimes called a checkout fee) . For example, it would be illegal for a shop to ring up your purchase and charge you a surcharge without letting you know about it. We may receive compensation when you click on links to those products. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion directly. Compare features and pricing from our top payment picks. A surcharge over 4% of the purchase price is illegal and any surcharges are illegal in 10 of the 50 states California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Many merchants complain about the fees they incur when accepting credit cards as payment, and that's understandable. Offers may be subject to change without notice. You might have even wondered if credit card surcharges in which customers are charged an extra 3% or so when paying by credit card are even legal. Second, credit card surcharges are legal in 40 states. 2023 Fortune Media IP Limited. Frank has been writing about payment processing and business services since 2015. We paid it and told them we werent happy about not being notified beforehand. Merchants that choose to impose surcharges are required to notify Visa at least 30 days in advance of implementing the policy. Credit card surcharges are applied when you use your credit card to make a payment. Its true that the additional revenue generated by surcharge fees can defray the expense of credit card processing at the transaction level. Pre-qualified offers are not binding. You Can't Meet Your Minimum Payments. Keep up with your favorite financial topics on NerdWallet. All Rights Reserved. The short answer is yes, it is legal for a merchant to impose a surcharge. The. A convenience fee is an additional charge for allowing the customer to use an alternative form of payment. Have you ever gone to pay for something with a credit card, only to be told that you'd be charged a fee for using a card instead of cash? American Express, Mastercard and Discover all have similar requirements for merchants that choose to impose surcharges on their customers. For example, Visa and Mastercard require 30 days' written notice be given to them and your payment processor before initiating surcharges. For example, a customer might be charged $1.00 to use a card. In fact, many merchants stopped accepting cash altogether during the pandemic, and continue to follow such policies. The minimum cant exceed $10 and must be the same for card networks. The financial crisis-era Dodd-Frank Wall Street Reform and Consumer Protection Act allowed retailers to set minimum purchase requirements for credit cards. Credit card payment networks like Visa, Mastercard, American Express and Discover permit participating merchants to impose credit card surcharges, when allowed by law. Research & Policy. Ted Rossman, industry analyst for Bankrate and CreditCards.com (owned by Red Ventures, TPGs parent company) said, A few years back, something similar played out with health insurance surcharges. This influences which products we write about and where and how the product appears on a page. What are these credit card surcharges? If you plan to implement surcharges, keep in mind that Visa, Mastercard, and Discover require your point of sale system to include the surcharge as a line item (although there are no rules as to the invoice wording for adding a credit card fee). Merchant Mavericks ratings are not influenced by affiliate partnerships. We'll run a soft credit check to find special offers, but it wont affect your credit score. As a consumer, you have options to avoid surcharges. For example, Colorado passed a new law to allow surcharges, which will take effect July 1. These fees on businesses generally range from 1% to 3% of every transaction. OK92033) Property & Casualty Licenses, NerdWallet | 55 Hawthorne St. - 11th Floor, San Francisco, CA 94105. This information may be different than what you see when you visit a financial institution, service provider or specific products site. See what a point or mile is worth with our appraisals of a loyalty programs currency, based on redemption values. Our opinions are our own. Opinions expressed on this site are the author's alone, not those of a third-party entity, and have not been reviewed, approved, or otherwise endorsed. However, your account representative (or anyone working in the customer service department if you dont have a dedicated representative) should be able to tell you to whom you should direct that request. These fees can add up for a business, especially if the majority of customers use credit cards. 12 Halloween Marketing Ideas for Your Small Business. A business is legally allowed to "surcharge" their customers who use a credit or debit card while still complying with New York State law, as long as certain conditions are met. If you're in the market for a new credit card, take a look at ourtop credit cardslist to find a card that fits your lifestyle. Until recently, credit card surcharges had been illegal in 10 states and Puerto Rico. It is indeed legal. Are credit card surcharges legal in the United States? Note: The requirements for surcharging eCommerce transactions are very similar. This restriction was implemented by the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. There will always be a slight difference that cant be reconciled. Separate laws and regulations affect the ability of government agencies and educational institutions to implement surcharges, and these are allowed even in states that prohibit surcharging by consumer businesses. However, because of the way Squares system is set up, it deducts the processing fee from the total transaction (after tax, tip, and yes, the surcharge). As you might have guessed, some businesses pass these fees directly to cardholders. Even so, it would be better getting your signup points elsewhere and not paying convenience fees or surcharges unless you absolutely have to. The settlement agreement impacts the rules related to the surcharging of credit card purchases made in the U.S. and U.S. territories only. A subsequent 2016 legal settlement to a class action lawsuit brought against the issuers led to uniformity among the issuers in their policies on surcharging and minimum transaction amounts. Itll allow you to pay 0% interest on both balance transfers and new purchases until 2022, and youll pay no annual fee. If you live in any of these states and are charged an illegal surcharge. I tried to inform him as politely as possible that such a surcharge is against Colorado law, and besides, merchant fees are about 2% to 3% of the transaction, about half of the surcharge he was requesting. Merchants are allowed to impose surcharges on credit card transactions, but there are limits to these charges. You just need to find a good, reputable provider that can help you implement the necessary technology, either in your store or on your website. The changes occurred in response to the class-action suit settlement. Customer acceptance tends to increase when something becomes common practice. So here's where consumer surcharges come into play. Download our list to learn more. Both require labor to count and deposit. Merchant Mavericks ratings are editorial in nature, and are not aggregated from user reviews. Credit card surcharges are fees that are added to a credit card transaction. Other costs include real estate, energy, labor, taxes, insurance, raw materials and necessary equipment. Offer from the Motley Fool: If you have credit card debt, transferring it tothis top balance transfer cardcan allow you to pay 0% interest for a whopping 18 months! Display the credit card surcharge on the receipt. The state now allows merchants to add a surcharge of up to 2% of the total cost of a transaction. In some states, however, it's illegal for businesses to pass credit card processing fees on to the customer. Are Credit Card Surcharges Legal? That could be because: While its legal under federal law to add a surcharge to credit card transactions, somestatesprohibit the practice. In response, the merchant reluctantly agreed to remove the surcharge from the transaction. Some of the guidelines include: While surcharge fees are legal under federal law, there are a few states and one jurisdiction that prohibit surcharges, according to the National Merchants Association. NerdWallet's cheapest credit card processing companies. Many or all of the products featured here are from our partners who compensate us. Before the Supreme Court ruling, merchants won the right toadd surcharges or checkout fees in a 2013 class action lawsuit against card issuers and banks. State governments: Almost all states used to prohibit surcharges. Follow Fortune Recommends onFacebookandTwitter. Keep an eye on your Credit Reports and Score. Furthermore, merchants are required to create signage at the point of entry and point of sale, alerting customers about credit card surcharges, and they must itemize the surcharge on transactions. Federal government: Credit card surcharges are federally legal in the United States. Surcharging is allowed in 48 states in the United States. Instead of the merchant having to absorb this expense, the customer who chooses to pay by credit card pays for the processing costs that do not apply to other payment methods. All Rights Reserved. Is Debit Card Surcharging Legal? It's illegal to charge credit card processing fees in these 5 states. These fees can vary depending on the type of credit card used and the payment processing system. According to November data from the Nilson Report, consumer and commercial credit, debit, and prepaid general-purpose cards generated $9.7 trillion in transactions in 2021: a 22.5% increase over the previous year. This content has not been reviewed or endorsed by any of our affiliate partners or other third parties. Improve earnings, maximize rewards and track progress toward dream trips. Help us to improve by providing some feedback on your experience today. Let us know how well the content on this page solved your problem today. This amount is generally two to three percent of the purchase price. Visa views surcharging as a practice that penalizes cardholders, and American Express goes as far as asking cardholders to report businesses that add surcharges on its cards. Whether you want to pay less interest or earn more rewards, the right card's out there.

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