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Surcharging Compliance

Prerequisites

Before implementing surcharging, understand:

Surcharging can recover card fees, but do it wrong and you face fines, lawsuits, and customer backlash. Most merchants who try surcharging mess up the compliance or the communication.

Last verified: December 2024. State laws change. Verify current rules before implementing.

What Matters​

  1. Surcharge ≠ convenience fee ≠ cash discount. Different rules apply to each.
  2. Debit cards cannot be surcharged. You must identify card type at swipe/dip and exempt debit.
  3. State laws vary. Some states prohibit surcharging entirely.
  4. Network registration required. You must notify Visa/MC before surcharging.
  5. Disclosure is mandatory. Customers must know before they pay.

Surcharge vs. Convenience Fee vs. Cash Discount​

Surcharge​

An extra charge added to credit card transactions to cover processing costs.

AspectRule
Applies toCredit cards only (not debit)
MaximumCost of acceptance or 3%, whichever is lower
DisclosureRequired at entry, POS, and receipt
Network registrationRequired (Visa, Mastercard)
Prohibited statesYes (see list below)

Convenience Fee​

A flat fee for using a non-standard payment channel (e.g., paying by phone or online when in-person is available).

AspectRule
Applies toAll payment methods (can include debit)
AmountFlat fee, not percentage
When allowedAlternative channel only, not primary
Common useGovernment, utilities, tuition
DisclosureRequired before payment

Cash Discount​

A discount offered for paying with cash (or non-card method).

AspectRule
Applies toCash, check, ACH payments
AmountNo cap
Network rulesNot regulated as surcharge
State lawsGenerally permitted
FramingDiscount from posted price, not fee added

Key difference: Cash discount = lower price for cash. Surcharge = higher price for credit. Legally and perceptually different.

Debit Card Prohibition​

You cannot surcharge debit cards. This includes:

  • PIN debit
  • Signature debit
  • Prepaid debit cards

BIN-Based Differentiation​

To comply, you must identify card type before applying surcharge.

MethodHow It Works
Real-time BIN lookupQuery card BIN to determine credit vs. debit
Terminal promptsCustomer selects credit or debit
Processor supportSome processors handle this automatically
Ask Your Dev

"Does our payment system differentiate credit from debit before applying surcharges? How do we ensure debit cards aren't surcharged?"

If you can't reliably differentiate, you shouldn't surcharge.

State Law Restrictions​

As of December 2024, surcharging is prohibited or restricted in:

StateStatusNotes
ConnecticutProhibitedNo surcharges allowed
MassachusettsProhibitedNo surcharges allowed
Puerto RicoProhibitedNo surcharges allowed

Previously prohibited, now allowed: Colorado, Kansas, Maine, New York, California, Texas, Florida, Oklahoma (laws changed or struck down).

Verify current status. State laws change through legislation and court decisions. Check before implementing.

Multi-State Businesses​

If you operate in multiple states:

  • Option 1: No surcharging anywhere (simplest)
  • Option 2: Surcharge only in permitted states (requires geo-detection)
  • Option 3: Cash discount everywhere (avoids surcharge rules)

Network Rules​

Visa Requirements​

  1. Registration: Notify Visa 30 days before surcharging
  2. Cap: Lower of cost of acceptance or 3%
  3. Disclosure: At store entrance, POS, and receipt
  4. Receipt: Surcharge must appear as separate line item
  5. Brand-level: Can't surcharge Visa differently than other brands

Mastercard Requirements​

  1. Registration: Notify Mastercard 30 days before surcharging
  2. Cap: Lower of cost of acceptance or 3% (aligned with Visa)
  3. Disclosure: Clear disclosure before transaction
  4. Receipt: Separate line item
  5. Consistency: Same surcharge across credit card brands

American Express​

Amex has historically prohibited surcharging, but this has changed in many markets. Verify current Amex rules for your situation.

Registration Process​

Contact your processor to:

  1. Declare intent to surcharge
  2. Provide surcharge percentage
  3. Receive confirmation of network notification

Your processor handles the network communication.

Disclosure Requirements​

Point of Entry​

For brick-and-mortar:

  • Sign at entrance stating credit card surcharge policy
  • Sign must be clearly visible before customer commits to purchase

Point of Sale​

Before payment:

  • Verbal disclosure recommended
  • Signage at register
  • For e-commerce: disclosure before checkout completion

Receipt​

After payment:

  • Surcharge as separate line item
  • Clear labeling ("Credit Card Surcharge" or similar)
  • Surcharge amount clearly stated

Sample Disclosure Language​

Entrance sign:

"We impose a surcharge on credit card transactions equal to our cost of acceptance, not to exceed 3%. This surcharge is not applied to debit card transactions."

Receipt:

Subtotal:           $100.00
Credit Card Fee:      $2.90
Total:              $102.90

When Surcharging Makes Sense​

Good Fit​

  • B2B transactions with large ticket sizes (corporate cards)
  • Industries where surcharging is normalized (government, utilities)
  • Low-margin businesses where 2-3% fee is material
  • Customers who have no alternative (captive market)

Poor Fit​

  • Competitive retail where customers have choices
  • Customer experience-focused businesses
  • High-volume, low-ticket transactions (fee seems excessive)
  • Businesses with significant debit card usage (compliance complexity)

The Math​

Before surcharging, calculate:

  • Current effective rate
  • Expected customer pushback (lost sales)
  • Implementation cost (systems, signage, training)
  • Compliance risk

If surcharging drives away 5% of customers and your margin is 20%, you need significant fee recovery to break even.

Implementation Checklist​

Before Launch​

  • Verify state law permits surcharging in all operating locations
  • Calculate your cost of acceptance (for cap compliance)
  • Notify processor 30+ days in advance
  • Confirm processor will handle network registration
  • Implement BIN-based debit exemption
  • Prepare disclosure signage (entry, POS)
  • Update receipt format
  • Train staff on policy and disclosure

At Launch​

  • Post entrance signage
  • Activate surcharge in payment system
  • Test with credit and debit to verify debit exemption
  • Verify receipt format

Ongoing​

  • Monitor customer complaints
  • Track surcharge revenue vs. lost sales
  • Review state law changes quarterly
  • Audit disclosure compliance periodically

Test to Run​

4-week surcharging pilot:

Week 1: Setup

  • Calculate cost of acceptance
  • Implement BIN detection
  • Prepare disclosures
  • Train staff

Week 2-3: Limited rollout

  • Enable at one location or for B2B segment
  • Track: customer complaints, lost sales, fee recovery
  • Monitor compliance (spot-check receipts, signage)

Week 4: Evaluate

  • Calculate net benefit (fees recovered - lost sales - complaints)
  • Decide: expand, modify, or abandon

Success criteria: Net positive revenue impact and minimal customer friction.

Scale Callout​

VolumeFocus
Under $100k/moProbably not worth it. Compliance overhead exceeds benefit. Consider cash discount instead.
$100k-$1M/moEvaluate for B2B or high-ticket segments only. Implement proper BIN detection.
Over $1M/moMay be worthwhile. Hire compliance review. Automate BIN detection. Segment by customer type.

Where This Breaks​

  1. Customer backlash in competitive markets. If customers can buy elsewhere without surcharge, they will.

  2. Compliance failures. Surcharging debit, exceeding caps, or missing disclosures create legal exposure.

  3. State law changes. A state you operate in could prohibit surcharging. Have a rollback plan.

Next Steps​

Evaluating surcharging?

  1. Understand the types - Surcharge vs convenience fee vs cash discount
  2. Check state restrictions - Prohibited states
  3. Run the math - Fee recovery vs customer loss

Implementing surcharging?

  1. Handle debit exemption - BIN-based differentiation
  2. Meet network requirements - 30-day notice, registration
  3. Follow implementation checklist - Before, at, and after launch

Testing before full rollout?

  1. Run 4-week pilot - Limited location or segment
  2. Prepare disclosures - Entry, POS, receipt
  3. Track success criteria - Net revenue impact