American checkout screens are becoming increasingly complicated. Whether it’s a restaurant bill, an invoice from a contractor, or online shopping, you may find yourself charged an extra 2% to 4% due to using a credit card for payment.
Sometimes, this extra charge is labeled as a “technology fee” or “processing charge,” but in reality, it is a credit card surcharge.
This change stems from businesses’ dissatisfaction with the rising “swipe fees” or “interchange fees.” Swipe fees are the fees charged by banks and credit card organizations to businesses whenever a consumer taps, inserts, or clicks to pay with a credit card.
Although major card networks dictate that businesses cannot charge more than the “actual cost of processing” for credit card payments, with a maximum cap of 3%, recent court rulings have overturned some state-level bans on surcharges. This allows businesses across the U.S. to have more leeway in passing these costs directly to consumers.
Coupled with varying state regulations, consumers now face an array of additional fees at checkout.
It is possible to mitigate or avoid credit card surcharges to some extent. Before making a payment, check the checkout screen or ask the cashier about any additional fees. If there is indeed a surcharge, consider using cash, bank transfer, or a debit card to circumvent this cost, as federal regulations prohibit surcharging debit card transactions.
If you must use a credit card for payment, compare the surcharge percentage imposed by the merchant with the rewards rate offered by your credit card. For instance, if a credit card provides a 2% cash back and the merchant imposes a 3% surcharge, the consumer essentially ends up paying 1%.
If the fee charged by the merchant is not clearly labeled or the name is ambiguous, inquire directly about what the fee covers. As per the regulations of card networks, businesses must disclose credit card surcharges to consumers before payment and list this fee separately on receipts.
Credit card surcharges are subject to strict operational rules set by card networks and varying state laws. Both major card networks have established clear limits on the costs that can be passed on to consumers:
For legal surcharging, card networks typically require businesses to notify their payment processors 30 days in advance and conspicuously display notices in their sales locations. For online transactions, merchants must clearly inform consumers on the digital checkout page. Additionally, the surcharge amount must be listed as a separate item on receipts with the specific amount indicated.
Given that enforcement of these rules often falls to payment processors, many businesses are attempting to levy such fees or rename them as “convenience fees” or “service fees” to make it harder for consumers to realize they are paying credit card surcharges.
While card networks set limits, state laws may establish lower caps or outright bans on surcharges.
The terms “surcharge” and “convenience fee” are often used interchangeably but follow different rules, and businesses cannot impose both types of fees in the same transaction.
If a fee labeled as a “service fee” or “technology fee” only appears when choosing “credit card” payment, it still falls under credit card surcharges even if the merchant avoids using the term “surcharge.” Therefore, it should comply with applicable fee disclosure requirements.
When reviewing bills or checkout screens, pay attention to the following warning signs:
If any of the above scenarios arise, directly inquire with the merchant about the purpose of the fee and whether it varies depending on the payment method.
Once it’s confirmed that a credit card surcharge will be imposed, the calculation is straightforward: compare the surcharge percentage with your credit card’s cash back rate.
If a credit card offering a 2% cash back incurs a 2% surcharge, the two roughly offset each other. However, if the surcharge is 3%, using the same credit card results in an actual loss of 1%.
Switching to a debit card or cash can entirely avoid credit card surcharges. However, in doing so, you are relinquishing the rewards that credit cards may offer. For significant purchases, the surcharge amount can translate into a substantial sum, hence opting for bank transfers or checks for payment, despite the extra time and hassle, may be justified.
Many consumers may not be aware of channels for complaints, but in reality, you have the right to take remedial actions.
Generally, credit card issuers must investigate consumer disputes within stipulated deadlines, and non-disclosure of surcharges by merchants is a common basis for successful complaints.
Yes, it is legal in most states in the U.S., provided that merchants inform consumers of surcharges before payments, adhere to the maximum percentage fee rates set by credit card issuers, and do not exceed the lower limits set by states.
However, a few states, including Connecticut and Massachusetts, entirely prohibit this practice. If unsure, inquire with the merchant before completing the transaction to confirm the legality of the surcharge in your state.
No, federal regulations prohibit surcharging debit card transactions in any state. This regulation applies across all states, regardless of what is indicated on the merchant’s signage.
If you discover a surcharge applied after making payment with a debit card, this is likely a billing error or a sign of unauthorized charging. In such cases, promptly raise a dispute with the bank, and do not assume this is a standard billing practice.
Visa sets the credit card surcharge cap at 3%, while Mastercard sets it at 4%; however, state laws may establish lower limits, such as Colorado allowing a maximum of 2%.
Therefore, consumers should compare the surcharge percentage disclosed by the merchant with these limits since surpassing the limits set by card networks or state governments could constitute a legal violation.
A surcharge is a fee specifically for credit card payments that must be clearly disclosed by the merchant and uniformly apply to all credit card brands accepted by the business.
A convenience fee applies to fees incurred when a consumer selects an alternative payment channel not typically offered by the merchant as a primary payment method.
Businesses are not permitted to levy both of these fees in a single transaction, so if two independent fees appear for a single purchase, it’s worth questioning the merchant directly.
(Note: This article is a translation and rewriting of an original news article. It discusses credit card surcharges, swipe fees, regulatory changes, and tips for consumers to avoid paying extra fees at checkout.)