When is it OK to add a surcharge?

Best practices for business owners

Your Business Credit columnist Elaine Pofeldt
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, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
Referring to your article published Nov. 11, 2013, titled “Can a doctor’s office charge a credit card surcharge,” you mention that “Under the current rules, retailers are allowed to charge fees equivalent only to what they pay to accept the card, up to 4 percent.” Does that still hold true? I’m located in Nevada by the way. Thank you! – Teagan

Answer Dear Teagan,
Nevada is not one of the states with anti-surcharge laws, so merchants based there are allowed to pass along the fees.  The jurisdictions that ban adding surcharges are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas and Puerto Rico. 

Under a court settlement that took effect in January 2013, merchants in most states have the freedom to add a surcharge to purchases by customers who use credit cards to pay for their purchases. (This ruling doesn’t cover debit card purchases.) Our story, “Convenience fees: When is it OK to charge extra to use a credit card?” goes into detail.

Just because you are legally allowed to add a credit card surcharge, it doesn’t mean it is necessarily the best decision for your business. Many consumers really don’t like them, even if they understand the reason, in principle, that a merchant might want to pass them along. As human beings, we’re emotional, and this can feel like we’re getting burned.

If you noticed the 2013 article because you work in a doctor’s office, the challenges of managing credit card fees may be a little different for you than for other merchants. Swallowing a 3 percent credit card surcharge on a $7 pastrami sandwich in a deli – or 21 cents – is quite different from absorbing a 3 percent surcharge on a $2,000 medical bill, which adds up to $60. Nonetheless, for many doctors, it would be difficult to pass along these charges to patients who may already be struggling to pay high out-of-pocket costs – especially if they have high-deductible plans. For someone who has no idea how he or she will come up with the money to pay a high medical bill, a credit card surcharge could easily feel like a slap in the face.

I have noticed that some of my family’s doctors in small independent practices do not accept credit cards at all, perhaps as a result of this. They don’t have the economies of scale that their colleagues in giant medical groups have and just can’t absorb the costs. By not accepting credit cards, they avoid having to either pass along fees or swallow them. It’s a viable solution for some. However, it is possible that this approach could deter patients who can’t rustle up the money they need to pay these doctors through other means.

I’d suggest you continue to keep an eye on the headlines to keep up with the latest developments when it comes to charging extra to use a credit card. This matter is far from resolved in the courts, and it is very possible that the situation for merchants could change in the next year or two.

See related: Should a business add a surcharge for card transactions? 

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Updated: 02-17-2019