Can You Legally Pass on Credit Card Fees to Customers?
Credit card surcharging and cash discounting are two legal options for offsetting card processing fees, depending on where your business is located.
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If credit card processing fees are cutting into your business’s bottom line, it could be worth charging them to your customers. It's legal for business owners to do this — in most instances. Here are four options for passing along card fees, as well as the rules you should know for each.
If you want a processor that offers automated solutions for processing fees, you can also jump to our picks for those .
Looking for a cheaper credit card processor?
If passing on credit card fees to your customers doesn’t feel right for your business, consider shopping around for a more cost-effective payment processor.
1. Credit card surcharging
Credit card surcharging enables a business to charge an additional fee (up to a maximum of 3% of the total transaction for Visa and up to 4% for Mastercard) when a customer pays with a credit card. This is meant to cover the cost of the processing fees for the business.
Just don’t be surprised if card networks try to talk you out of implementing surcharges when you notify them. After all, surcharging may discourage customers from paying with credit cards. In reality, though, your most important consideration should be your customer base. How will your customers react to seeing an additional charge at checkout? It’s worth looking into whether your competitors use surcharging and even asking trusted customers for their opinions.
Rules to know if you’re considering this option
This practice is legal in all but four states — Connecticut, Maine, Massachusetts and Oklahoma. Other states allow surcharging but may limit the amount or mandate that the total price (including the surcharge) must be disclosed before the sale is completed. For example, Colorado caps the surcharge fee at 2%. Make sure you know your state's laws regarding surcharges before implementing the practice at your business.
It is also important to note that surcharging is not allowed for debit cards, even when they are run as a credit transaction. Businesses that plan to add a surcharge to card payments must follow a specific set of rules laid out by the major card networks, notably Visa and Mastercard. One such rule states that any business that plans to add a surcharge must notify the card network in writing at least 30 days before beginning to surcharge.
Pros
Can help cover the cost of processing fees.
May help improve your bottom line by reducing the amount you pay to the processor.
Cons
Not legal in all 50 states.
May subject your business to random audits by credit card networks.
Could cause customer dissatisfaction.
2. Cash discounting
Cash discounting, sometimes referred to as dual pricing, is another option available to business owners who wish to minimize the impact of credit card processing fees on their bottom line. Instead of adding a fee for card payments, businesses that offer a cash discount advertise both the full cost of a good or service (or the amount owed if purchased with a card) and a discounted price available to customers who pay with cash.
Rules to know if you’re considering this option
Unlike credit card surcharging, cash discounting is legal in all 50 states. But like surcharging, there are specific rules you must follow to offer a cash discount program in a legal manner.
For example, a compliant cash discounting program necessitates that you clearly list the credit card price for all your customers to see before the point of purchase; you cannot list only the cash price and then surprise customers with a higher card price at the time of transaction.
Pros
Legal in all 50 states.
Customers may be more receptive to a percentage discount (vs. percentage added fee of a surcharge).
May feel more familiar to customers, since it's long been an option at gas stations.
Cons
Likely need to raise prices on all items or services before implementing for it to make sense financially.
Could cause customer dissatisfaction.
May require more effort and resources to accommodate more frequent bank deposits.
3. Convenience fees
Rather than attaching a fee to a specific payment type (e.g., credit cards), convenience fees charge for the specific payment method used (e.g., online). For example, businesses that typically accept payments in person may charge a convenience fee for transactions completed via an alternative, non-standard method — like a concert venue that lets you buy tickets over the phone or online. While imposing this fee wouldn’t offset the fees on all credit card transactions, it helps cover some.
Rules to know if you’re considering this option
Like surcharging and cash discounting, convenience fees come with their own set of rules that may vary by state and locality. But generally, according to Visa, you can’t charge convenience fees in a face-to-face environment and the extra fee must be disclosed before the customer completes their purchase.
Pros
Legal in all 50 states.
May feel more familiar to customers who have bought tickets online before, for example.
Lump sum convenience fee may cover more than the processing fee.
Can be applied to debit card and ACH payments, in addition to credit card payments.
Cons
Doesn’t apply to in-person payments.
Lump sum convenience fee (e.g., $3) may deter customers from making the purchase altogether.
4. Minimum purchase amounts
Businesses may prevent customers from paying with a card unless their transaction total exceeds a set amount, like $5 or $10. Processing fees for very small purchases may eat into the business’s profit enough that the business could actually lose money on the sale. Unlike the options above, there’s no extra fee involved in this strategy. However, it does let businesses be pickier about which transactions are worth paying processing fees for.
Rules to know if you’re considering this option
While states don’t limit the use of minimum purchase requirements like they do surcharging, credit card networks do have their own rules. For example, merchants cannot impose a minimum purchase amount higher than $10 for Visa cardholders.
Pros
Doesn’t impose an extra fee on the consumer.
Easy to implement.
Has less state-specific rules than surcharging, for example.
Cons
Doesn’t offset processing costs for purchases that cost more than the minimum amount.
Payment processors with solutions for passing on credit card fees
Dharma Merchant Services
Solution type: Credit card surcharging.
Why we like it: While Dharma’s surcharging solution comes with an added monthly cost, it also comes with extra benefits, including the ability to surcharge for card-present and card-not-present transactions within Dharma’s virtual terminal and for invoiced and recurring payments. Dharma’s platform that enables the surcharge option also integrates with QuickBooks, which makes for smoother bookkeeping. Read our full Dharma Merchant Services review.
Pricing
Monthly fee:
$25 per month for MX Advantage, which enables surcharging, in addition to the monthly fee below that aligns with your business type.
- $15 for nonprofits.
- $20 for business to business, e-commerce, hospitality, retail and restaurant.
Payment processing fees:
- Interchange plus 0.15% + 8 cents for in-person transactions.
- Interchange plus 0.20% + 11 cents for online transactions.
- Interchange plus 0.25% + 8 cents for in-person AmEx transactions.
- Interchange plus 0.30% + 11 cents for online AmEx transactions.
Stax
Solution type: Credit card surcharging.
Why we like it: Stax’s surcharging program lets businesses pass up to 100% of an online or in-person transaction’s processing fees to the customer. The company’s payment processing platform is best for high-volume businesses that process enough card transactions to negate the monthly subscription fee. Read our full Stax review.
Pricing
Monthly fee:
- $99 if you process less than $150,000 per year.
- $139 if you process between $150,000 and $250,000 per year.
- $199 and up if you process more than $250,000 per year.
Payment processing fees:
- Interchange plus 8 cents for in-person transactions.
- Interchange plus 15 cents for manually keyed transactions.
National Processing
Solution type: Cash discounting.
Why we like it: While many processors have begun to offer compliant credit card surcharge programs, National Processing stands apart with its compliant cash discount offering. As long as you meet the monthly processing minimum of $3,000, there’s no additional charge to make use of the cash discount program. Read our full review of National Processing.
Pricing
Monthly fee:
- $14.95 for Basic In-Person Package, Basic Online Package.
- $19 and up for Premium Package.
Payment processing fees:
- Basic In-Person Package: 2.5% plus 10 cents per transaction.
- Basic Online Package: 2.9% plus 30 cents per transaction.
- Premium Package: 2.41% plus 10 cents.
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