Can You Legally Pass on Credit Card Fees to Customers?

Small-business owners who accept card payments for goods or services know that offering choice on how their customers pay comes at a cost. Credit card processing fees can add up quickly. According to data released by the Nilson Report, merchants paid $172.05 billion in processing fees to accept card payments in 2023 — an increase of 7.1% compared with 2022.

Business owners may want to explore their options for legally offsetting credit card fees. Passing on credit card fees to customers is certainly not something every small-business owner feels comfortable doing, but if you are curious about your options, read on to learn about credit card surcharging, cash discounting and other ways to reduce payment processing fees.

Options for passing on credit card fees to customers

Before deciding whether passing on credit card fees to your customers or implementing other cost-saving strategies is the right move for your business, consider your options for doing so and the pros and cons for each.

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.

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.

If you’re considering adding a surcharge for customers who pay by card, know that card networks generally frown upon this practice as it can deter customers from using their credit cards. You’ll likely also want to give consideration to your customer base and how they may react to seeing an additional fee at checkout. It may be useful to first look into whether your competitors surcharge credit card payments and perhaps gather some feedback from your trusted customers on how they may react to it.

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.

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. Again, it will be important to take into consideration your customers’ likely reaction to a program like this before implementing it.

Convenience fees

Businesses that typically accept payments in person, for example, may charge a convenience fee for transactions completed via an alternative, non-standard method, like over the phone or online. For example, a concert venue that primarily sells tickets at its ticket booth might charge a convenience fee for ticket purchases made online. 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). While imposing this fee wouldn’t offset the fees on all credit card transactions, it helps cover some.

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.

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.

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.

» MORE: Why do some stores have credit card minimums?

Payment processors with solutions for passing on credit card fees

Increasingly, payment processors are offering compliant solutions for credit card surcharging and cash discounting. Here are several such processors that also make NerdWallet’s lists of best payment processing companies, best credit card processing companies and best 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.

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.

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.