The Fine Print: Credit card surcharges grow more common

Businesses tack on fee to cover 'swipe fees,' even in states where that's banned

The Fine Print with Fred Williams

Fred O. Williams is senior reporter for CreditCards.com. A business journalist since 1987, his work has appeared in Kiplinger's Personal Finance magazine, the Buffalo News and USA Today.

Credit card users are seeing their protection from extra fees eroded, even in states that have laws on the books that ban surcharges for card use.

Backed by court decisions, some merchants are imposing surcharges to recover the cost of “swipe fees” they pay to process cards.

Surcharges and free speech

At Expressions Hair Design in upstate New York, credit card users face a surcharge of 2.75 to 3.5 percent, owner Linda Fiacco said. The charge covers her cost of processing credit card transactions through Square.

“Every once in a while [customers] say, ‘I’ll write you a check instead,’” Fiacco said. But otherwise there isn’t much reaction from customers – who are warned by a sign that credit card use will cost extra.

Expressions led the charge against New York’s no-surcharge law. In March 2017, the Supreme Court decided in its favor. The court found the law interfered with merchants’ free speech rights under the First Amendment.

The ruling did not explicitly strike down New York’s law. The case was sent back to an appeals court to look at the effect on merchants’ speech rights. But that was enough to undermine enforcement – both in New York and other states with similar laws.

Lower court challenges have also shaken no-surcharge laws in Florida and California.

The states with no-surcharge laws are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas, according to the National Conference of State Legislatures. Puerto Rico also has a no-surcharge law.

See related: More merchants adding credit card surcharges

How surcharges work

But while surcharges themselves may be tough to fight, there are still rules about how they should and shouldn’t be imposed.

Card networks Visa and Mastercard settled a dispute with retailers by allowing surcharges in 2013. But they still have rules around the practice:

  • Dollar limits. The upper limit on surcharges is 4 percent of the transaction.
  • Disclosure. There should be a sign at the point of sale. The surcharge should not come as a last-minute surprise.
  • Records. The surcharge should be printed on receipts.
  • Equal treatment. Merchants aren’t supposed to charge a surcharge on only some cards and exempt others.

American Express also allows surcharges, as long as they are applied to other credit cards as well. However, merchants that are concerned about card transaction costs might not accept AmEx in the first place.

What recourse do you have if you think a surcharge has been imposed unfairly?

  • Visa’s online complaint form is here.
  • Mastercard also has an online complaint form.
  • States have consumer protection laws against undisclosed fees being added to the price of goods. If a vendor slaps a surcharge on your bill without warning, a complaint to state consumer protection officials such as the attorney general’s office may be in order.

Where are you more likely to get hit by a surcharge?

Numbers are hard to come by, but it seems clear that surcharges are more likely to pop up at independent merchants.

Big retail chains are mostly avoiding surcharges, according to the National Retail Federation.

“The retail industry as a whole has no intention to surcharge,” spokesman J. Craig Shearman said. Instead, retailers are pushing card networks to reduce transaction costs – such as in a lawsuit between Walmart and Visa.

Card networks Visa and Mastercard wouldn’t discuss the volume of merchants registering to surcharge, although a Mastercard spokesman said the company is “not seeing anything out of the ordinary.”

But online comments, published reports and questions from readers at CreditCards.com point to independent merchants such as restaurants and non-chain retail stores as businesses likely to impose surcharges.

Convenience fees versus surcharges

Unlike convenience fees, which are narrower in scope, surcharges can pop up at retailers and merchants in the regular course of business.

Convenience fees are permitted when a merchant sells via a special channel – such as a movie theater selling tickets online instead of in person. Many states also permit fees for card use at utilities, government offices and educational institutions.

For more information, see rules that merchants are supposed to follow if they accept cards from Visa, Mastercard or Discover.

See related: What are my rights regarding credit card surcharges?


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Updated: 11-19-2018