Surcharges can be frustrating for customers. If you’re a business owner, consider eliminating them or give options to avoid them
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Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.
The content on this page is accurate as of the posting date. Some of the offers mentioned below may no longer be available. Please review our list of best credit cards to find our current offers, or use our CardMatch tool to find cards matched to your needs.
I’m a small-business owner and if I’m not allowed to impose a surcharge when customers use cards, how can the gas station I go to do it?
A court in California overturned the ban on surcharges, so at the moment, the ban is not enforceable. Your gas station, Arco, charges a set fee for using a debit card.
Dear Your Business Credit,
So I read the article that says in California, I can’t pass on the credit card processing fee to my customers for using their credit card/debit card at my small business/nonprofit. So how does Arco gas get away with charging 35 cents every time I go to the pump AND has a cheaper cash price?
California is killing my small business with all the fees I have to eat! I am a nonprofit, and I really have negotiated with the credit card companies, but I am being charged more often than not for purchases under $20. – April
I’m not clear how you are running a small business that is also a nonprofit – usually an entity is one or the other – but that doesn’t prevent me from addressing your question.
As the California attorney general’s office explains on its website, the state passed a law in 1985 that bans merchants from adding a surcharge if customers pay with a credit card instead of cash. The law allowed merchants to give customers who paid cash a discount for paying with cash, check or debit card.
However, in March 2015, a federal court found that law unconstitutional and said the office of the attorney general could not enforce it. The office of the attorney general is appealing the order but cannot enforce this law at the moment.
In January 2018, a panel of judges from the 9th U.S. Circuit Court of Appeals agreed the law banning surcharges was unconstitutional and made some modifications to an injunction that blocks its enforcement. The thinking behind both courts’ decisions was that the law interferes with commercial speech and doesn’t prevent consumer deception – the stated purpose.
What this means is that the law that bans surcharges can’t be enforced right now, according to the attorney general’s office.
It’s worth noting that credit card companies’ rules also apply to surcharges. Under a court settlement that took effect in January 2013, Visa and Mastercard allow merchants to pass along a charge equal to what they must pay to accept the card, up to 4 percent. American Express and Discover also allow surcharges, within limits.
Charging for debit cards
As to why you are seeing the charge at Arco, I ran your question past Jen Lee, an attorney with offices in San Ramon and Tracy, California, who frequently advises clients on debt-related matters and is a co-author of “Preventing Credit Card Fraud: A Complete Guide for Everyone from Merchants to Consumers.”
“Arco only accepts debit cards (not credit cards) and charges 35 cents for a convenience fee on debit card transactions, which is supposed to be clearly stated before purchase,” Lee said in an email. “There was a class action lawsuit in Oregon a few years ago where the jury found that the charge was not properly disclosed. The reason Arco gas tends to be cheaper is that they limit their costs by only accepting cash, check, [and] debit.” (Arco also offers the option of paying with your mobile wallet linked to your debit card.)
In the FAQs on Arco’s website, the company provides its own explanation of why there is a 35-cent charge on PIN debit cards:
“There are costs involved with accepting and processing payment cards,” the company notes. “There is a 35-cent processing fee for debit cards only, in addition to any fees your bank may charge for this service. For all other transactions there are no additional fees. This allows our consumers the flexibility of using a debit card while still providing value that our consumers expect. This 35 cent convenience fee is the amount Arco and ampm charge for debit transactions.” Ampm is a convenience store chain with branches in California and other states.
Passing on processing costs to customers
As to whether you should add processing fees to your own transactions, Lee noted, “The issue with the January, 2018 ruling from the 9th Circuit is that it technically only applies to the five businesses that were the original plaintiffs, although if a business is using the same structure, that would be fairly safe.”
The emphasis, Lee notes, is on whether the consumer is misled or the practice could be a considered an unfair business practice if a merchant tries to hide the fee.
“As far as advice goes, a merchant in California can surcharge for credit cards, but it should be very apparent that there is a cost for paying with a credit card,” Lee said in her email. “Avoiding anything that could be viewed as deceiving, misleading, or unfairly impacting consumers is key. I also recommend only passing on the actual surcharge cost and not making any sort of profit on the surcharge. (For example, charging 4 percent when the actual cost for processing is 2.29 percent is not advised).”
Tip: Often it is better to bake the cost of doing business into your pricing than to add small charges that may seem like you are nickel and diming customers.
Being crystal clear about any surcharge you are imposing is also essential, she notes.
“For communicating with customers, including signs and price stickers, the price should be the same for everyone (single-sticker price model) with a very conspicuous notice that there is a credit card surcharge that will be added,” Lee wrote.
Given how annoyed you are about the 35 cent surcharge, I would think carefully about whether your customers will feel the same way. Often it is better to bake the cost of doing business into your pricing than to add small charges that may seem like you are nickel and diming customers.
As to your frustration with paying that 35 cents extra, the best way around this is to go to a gas station that charges the same price for all gas purchases (but avoiding those that jack up the price for both or to use cash or a debit card when you go to the pump).
Offset the surcharge with a rewards card
You may want to consider getting a business credit card that offers you discounts on gas, as well, to offset any charges you are paying. One example is the Bank of America Business Advantage Cash Rewards Mastercard. It gives you 3 percent cash back on purchases at gas stations. Fleet cards may also offer a discount. The Fuelman Commercial Advantage Credit Card, for instance, enables you to save up to 10 cents per gallon.
I’d also suggest you get a mileage tracker for your phone, to make sure you are capturing all of the miles you are logging so you can get the proper mileage deduction when you file your taxes. I use one called Everlance that has worked very well.
It’s hard to avoid certain costs, whether you are running a business or a nonprofit, but taking advantage of any discounts and deductions available to you can minimize the pain of paying for them.