Surcharging Rules
Credit card surcharging is legal in most US states but subject to network caps (Visa 3%, Mastercard 4%) and the lower of your actual merchant discount rate. Prohibited entirely in Connecticut, Massachusetts, and Puerto Rico. Never surcharge debit or prepaid cards. Requires 30-day advance notice to networks, clear customer disclosure at entry and point of sale, and separate line item on receipts.
What is Surcharging?
A surcharge is a fee added to a transaction when a customer pays with a credit card. It's designed to offset the merchant's cost of accepting credit cards.
Surcharging was prohibited by card network rules until a 2013 class action settlement (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation) allowed merchants to surcharge in states where it's legal.
Related Concepts
| Term | Definition | Key Difference |
|---|---|---|
| Surcharge | Fee added for credit card payment | Added to base price |
| Convenience Fee | Flat fee for alternate payment channel | For non-standard channels only |
| Cash Discount | Lower price for paying with cash | Base price is credit price |
| Service Fee | General fee not specific to payment | Not payment-method specific |
Understanding these distinctions matters because each has different rules and restrictions.
Network Surcharging Rules
Visa Requirements
Cap: 3% of transaction OR your merchant discount rate, whichever is lower
Advance Notice:
- Notify Visa and your acquirer 30 days before implementing
- Register at www.visa.com/merchantsurcharging
Card Type Restrictions:
- Credit cards only
- Never surcharge debit or prepaid cards (even if cardholder selects "credit" at point of sale)
Disclosure Requirements:
- Clear disclosure at store entrance or website homepage
- Clear disclosure at point of sale before payment processed
- Separate line item on receipt (not buried in subtotal)
Equal Treatment:
- Must surcharge Visa on same terms as equal-or-higher-cost competitors
- Brand-level or product-level surcharging permitted
Non-Compliance Penalties:
- Visa enforcement actions can result in significant fines
- Penalties range from tens of thousands to over a million dollars in severe cases
Mastercard Requirements
Cap: 4% of transaction OR your merchant discount rate, whichever is lower
Advance Notice:
- Written notice to Mastercard and acquirer 30 days before start
- Acquirer forwards notification to Mastercard
Card Type Restrictions:
- Credit cards only
- Never surcharge debit or prepaid cards
Disclosure Requirements:
- Clear disclosure required at all customer touchpoints
"Free processing" programs offering 3.5-4% surcharges violate Visa's 3% cap. Many programs also fail disclosure requirements. Non-compliant merchants face significant fines.
State-by-State Surcharging Status
States Where Surcharging is Prohibited (as of 2025)
| State | Status | Notes |
|---|---|---|
| Connecticut | Prohibited | No surcharges allowed |
| Massachusetts | Prohibited | No surcharges allowed |
| Puerto Rico | Prohibited | Territory prohibition |
Several other states impose strict limits or are in flux (e.g., Maine, Oklahoma). State surcharging laws change frequently. Always verify current law with local counsel before implementing a surcharge program.
States with Specific Restrictions
| State | Restriction | Details |
|---|---|---|
| Colorado | 2% cap | Lower than network caps |
| New York | Complex | Must display total credit card price; restricts how surcharges shown |
| New Jersey | Cost limit | Cannot exceed actual processing cost |
| Nevada | Cost limit | Cannot exceed actual processing cost |
| South Dakota | Cost limit | Cannot exceed actual processing cost |
| Minnesota | Disclosure rules | Mandatory fees must be in advertised price (Jan 2025) |
| California | Legal with caveats | SB 478 (July 2024) requires total price upfront for "mandatory" fees |
| Texas | Complex/Evolving | State law prohibits but federal courts ruled unconstitutional; AG says enforceable |
New York Detail: NY law requires merchants to display the full credit card price upfront. Many merchants adopt cash-discount style presentation to stay compliant.
California Detail: SB 478 requires total price upfront for "mandatory" fees; surcharges may be excludable as avoidable fees but consult counsel.
Texas Detail: Very state-specific. Federal courts have ruled the prohibition unconstitutional, but the state AG maintains it's enforceable. Consult local counsel.
States Where Surcharging is Generally Permitted
Remaining ~40 states allow surcharging subject to network rules and general disclosure requirements. However, always verify current status before implementing.
Implementation Requirements
Before Surcharging
- Confirm state law allows surcharging in all locations where you operate
- Determine your merchant discount rate (MDR) for applicable cards
- Set surcharge at the lower of MDR or network cap (3% for Visa)
- Notify Visa: www.visa.com/merchantsurcharging
- Notify Mastercard: Written notice to acquirer who forwards to Mastercard
- Wait 30 days before implementing
Disclosure Requirements
| Touchpoint | Requirement |
|---|---|
| Entry point | Sign at store entrance or website homepage |
| Point of sale | Clear notice before payment is processed |
| Receipt | Surcharge as separate line item |
| Online | Visible before checkout completes |
Signage Examples
Visa provides sample compliant signage at: https://usa.visa.com/support/small-business/regulations-fees.html
Sample In-Store Sign:
"We impose a surcharge on credit card transactions that is not greater than our cost of acceptance. We do not surcharge debit cards."
Sample Online Disclosure:
"A [X]% surcharge will be added to credit card transactions. This fee covers our cost of accepting credit cards. Debit cards are not surcharged."
Surcharging vs. Cash Discount Programs
| Feature | Surcharging | Cash Discount |
|---|---|---|
| Listed price | Base price (lower) | Credit card price (higher) |
| Adjustment | Fee added for credit | Discount for cash |
| Perception | Penalty for using card | Reward for using cash |
| Disclosure | Network-mandated requirements | State consumer protection laws |
| Debit cards | Cannot surcharge | Discount applies to cash only |
| Network notification | Required 30 days in advance | Not required |
New York Implications (Feb 2024)
New York law requires merchants to display the full credit card price upfront, rather than a lower pre-surcharge subtotal. In practice this makes the traditional "base price + separate card surcharge line item" model very difficult.
Common Approaches in NY:
- Use a cash-discount approach (list higher price, discount for cash)
- Show only the final card price (no line-item surcharge)
Convenience Fees
Convenience fees are NOT surcharges and have different rules.
Requirements
- Must be for bona fide alternate payment channel
- Flat fee (not percentage)
- Channel must be different from merchant's normal payment method
- Cannot charge if merchant only accepts cards
- Cannot charge if merchant is 100% card-absent
Eligible Merchants
Convenience fees are typically appropriate for:
- Government agencies (paying taxes online when mail is standard)
- Educational institutions (tuition payments)
- Utility companies (bill payments)
- Other merchants with primary non-card payment channel
Example
A utility company that normally accepts payments by mail or in person can charge a convenience fee for paying by phone or online, since those are alternate channels.
A retailer that primarily accepts cards cannot charge a convenience fee for card payments.
Issuer Perspective
As an issuer, surcharging affects your cardholders:
Potential Impacts:
- Cardholders may avoid cards with high surcharges
- Complaints about "hidden fees" may increase
- Some cardholders may switch to debit to avoid surcharges
Issuer Options:
Issuers cannot directly prevent compliant surcharging but can:
- Educate cardholders about surcharge limits and rights
- Provide information about disputing non-compliant surcharges
- Monitor for reports of excessive or deceptive surcharging
- Report non-compliant merchants to networks
Compliance Monitoring
For Acquirers
- Ensure merchants have properly notified networks before surcharging
- Monitor for excessive surcharge percentages (above caps)
- Respond to cardholder complaints about surcharging
- Note: Visa conducts mystery shopping audits for compliance
For Merchants
Documentation to Maintain:
- Your merchant discount rate (to prove surcharge doesn't exceed it)
- Network notification confirmations
- Staff training records on disclosure requirements
- Photos of compliant signage
Ongoing Compliance:
- Train staff on proper disclosure
- Audit receipts for correct line-item display
- Monitor customer complaints
- Update signage if rates change
Common Compliance Failures
| Failure | Why It's a Problem |
|---|---|
| Surcharging debit cards | Never permitted, even if "credit" selected |
| Exceeding network caps | 3% Visa max often violated |
| No advance notice | Must notify networks 30 days prior |
| Missing disclosures | Required at entry, POS, and receipt |
| Surcharging in prohibited states | CT, MA, PR outright bans |
| Burying surcharge in total | Must be separate line item |
Next Steps
Evaluating surcharging?
- Check state-by-state status - Prohibited in CT, MA, PR
- Understand network rules - Visa 3%, Mastercard 4%
- Compare to cash discount - Different rules
Implementing surcharging?
- Follow implementation requirements - Notify, wait, disclose
- Set up disclosures - Entry, POS, receipt
- Avoid common failures - Debit, caps, states
For acquirers and issuers?
- Monitor compliance - Acquirer responsibilities
- Understand issuer impact - Cardholder effects
- Track violation patterns - What to watch for