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In general, the Nerds advocate using a credit card for as many of your day-to-day purchases as possible. Assuming you’re paying the bill on time and in full every month, this is a great way to earn big rewards on all your regular spending.
But, unfortunately, you might pay more to use credit for a regular weekly purchase. If you look carefully, you may notice that your local gas station charges slightly more per gallon to customers who use credit versus cash. Is this allowed? The short answer is yes, but the long answer is pretty interesting. Let’s dig in!
Credit card surcharges at the gas station – there’s history here
If you’ve been around the block once or twice, you know that there’s a long history in the U.S. of gas stations charging extra on credit card transactions. Before January 2013 (we’ll get to the significance of that date in a minute), the additional pennies per gallon you paid when using plastic couldn’t be referred to or labeled as a “fee” or “surcharge.” Per rules established by Visa and MasterCard, merchants weren’t permitted to charge customers more for using credit.
Instead, the fewer pennies per gallon you paid when using cash was considered a “discount.” Do you see the difference?
You’re probably wondering why the discount offered to customers paying cash was (and still is) usually only available at gas stations. The answer is that gas stations are only selling one primary product — fuel. It’s easy for them to price their product differently based on payment method, but it would be challenging for a convenience store to do the same.
Technically, all retailers are now allowed to charge fees for paying with credit
But let’s put gas stations aside for a minute. To totally understand how they and other retailers are technically allowed to charge more for credit card transactions, we need to look at a long-standing, big-picture issue related to merchants and credit card networks.
For years, retailers fought with Visa and MasterCard to be allowed to charge customers paying with credit slightly more for their purchases. Why? Because these two payment networks charge merchants a fee every time you swipe your card. It ranges from about 1%-3.5%, and it can really cut into retailers’ profits.
Eventually, retailers won the battle. Since Jan. 27, 2013, merchants have had the ability to assess a surcharge on customers who pay with credit. However, if they choose to take this step, there are a lot of rules that must be followed, including:
Notifying consumers that they’re being charged for using credit, both at the register and on the receipt. On the receipt, the merchant is required to state the exact dollar amount you paid in credit card surcharges.
Charging customers only what they’re paying to the credit card payment networks in swipe fees (again, this is usually around 1%-3.5% of the cost of the transaction). In other words, merchants are allowed to pass on the fee to the customer, but aren’t allowed to make a profit on credit card surcharges.
Staying on the right side of state laws. As of August 2014, nine states prohibit retailers from passing credit card surcharges onto consumers. They are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas.
Limiting surcharges to credit card transactions. If you pay with debit, the retailer isn’t allowed assess the fee. This includes debit transactions where you sign for your purchase as opposed to entering a PIN. Only credit card users can be hit with a surcharge.
So, yes, gas stations (and all other retailers) are permitted to charge you extra for using a credit card. But here’s the thing: Those rules are pretty cumbersome for gas stations to follow. Instead, most rely on their old standby – providing a discount for using cash as opposed to a surcharge for using credit. This is still totally permissible, according to both Visa and MasterCard and state laws regulating consumer credit card surcharges. Go figure!
Nerd tip: If you’re an Arco customer, you might be wondering why this gas station is still charging a convenience fee for debit card payments. According to the information above, it shouldn’t be allowed anymore, right?
Actually, this is a special case. Interlink, a debit payments processor, allowed the practice for years. When Visa bought Interlink, it agreed to let Arco and a handful of other gas stations continue assessing this fee. And since the fee is assessed on debit (not credit) transactions, the company isn’t breaking any state laws.
How can I avoid paying more for using my credit card?
If the gas station you frequent insists on offering a cash discount, there’s not much you can do to avoid paying more if you use your credit card. The same goes for retailers who’ve chosen to assess a surcharge on credit card transactions (although this is exceedingly rare). In both cases, you’ll simply have to suck it up if you want to swipe.
But there is something to be said for voting with your wallet. If you’re annoyed by retailers who charge you more for using your credit card, the best thing you can do as a consumer to send a message is shop elsewhere. If you’re really fired up, encourage friends and family to do the same.
Finally, if you feel that a merchant is violating Visa and MasterCard’s rules related to credit card surcharges as they’re described above, let the networks know about it. Contacting the bank that issues your credit card won’t do much good, but you can get in touch with Visa and MasterCard by following these links and filling out the online forms.
The takeaway: Gas stations and other retailers can charge you more for using your credit card, but there are lots of rules to be aware of. If you notice any funny business, be sure to report it to the major credit card payment networks.