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Coronavirus: Paying with credit is getting more expensive

Many businesses have started passing credit card fees to customers


Credit card users are starting to see an increase in surcharges, with one company citing current business challenges as the reason for passing this fee to certain customers.

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Life Time, which operates more than 150 fitness centers across the U.S. and Canada, is implementing a 2.5% surcharge on all recurring credit card transactions beginning Nov. 1.

“As we navigate current business challenges, we have reached the need to reduce costs associated with credit card fees,” the company wrote in an email to members. “While we have been able to absorb these fees for many years, after much consideration, we are providing members the option of either accepting a 2.5% surcharge beginning Nov. 1, 2020, or avoiding this surcharge by providing a debit card as your monthly payment method.”

This is really just a price increase by another name. It’s closely related to the COVID surcharges I’ve written about previously, although it feels more permanent and less direct than, say, a hair stylist adding $3 to your bill due to enhanced cleaning procedures or a dentist tacking on $10 because of additional personal protective equipment.

With COVID surcharges, at least you can usually see (and benefit from) the improvements. There’s also an implication that the fee is temporary.

See related: How to manage your finances during the coronavirus outbreak

Surcharging is an unpopular concept

In a recent survey, American Express found 78% of all credit card holders believe it’s unfair to charge customers an extra fee based on the way they choose to pay. And 86% of respondents told Amex that if a business they frequently patronize were to start surcharging, they would likely shop somewhere else.

Within the past week, I also encountered a 4% credit card surcharge at a pizzeria near my home in suburban New York and a 3.99% add-on at a sandwich shop down the street. Plus, I received an email from a reader in Texas who was upset about a 3% credit card fee imposed by a car dealership.

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

A rising trend?

Surcharging seems to be accelerating as a result of the financial pressures associated with the pandemic, although stores have fought card fees for years. 

Merchants celebrated a strict cap on debit card fees that took effect in 2010. They have been less successful combating credit card processing fees, which usually run in the 2-3% range. While credit card surcharges are legal in almost every state, they haven’t been widely implemented to date.

Retailers’ common refrain is that they would decrease prices if they didn’t have to foot the interchange bill. However, there’s no evidence that lower debit card swipe fees led to price reductions.

As I see it, this is a legal battle between card companies and merchants. Consumers are better off siding with the card companies, because they share some of the interchange with you in the form of rewards. If you avoid interest by paying your credit card bills in full, you’ll come out ahead. The average retailer is unlikely to pass any savings to consumers if the interchange fee is removed.

For example, we used to pay my wife’s gym dues with a 2% cash back card, and on a yearly basis, those rewards would add up to $48. With a 2.5% surcharge, the only logical option is to switch to debit, and we’d lose the rewards. I suppose the gym might say they had to choose between raising prices 2.5% and implementing a 2.5% surcharge. I still think there’s a more negative perception to surcharging, and it could reduce sales in some settings.

I will concede that a surcharge on a recurring payment stings less than encountering one each time at the point of sale. That likely emboldens companies such as Life Time and others relying on autopay.

There’s more of a risk if you’re a business that accepts payments at the time of purchase and has a lot of competition (like a restaurant or hair salon). In those examples, customers are more likely to take out their dissatisfaction by tipping less or taking their business elsewhere.

See related: Many consumers plan to spend less after the pandemic than before

Pro-surcharge payment processors

The payment processor CardX encourages merchants to pass the interchange fee to customers. I spoke with CardX founder and CEO Jonathan Razi, and he said the COVID era is an ideal time for merchants to implement surcharges. He cited the cost pressures they’re under, and believes law firms, insurance companies and home services providers are some of the businesses that can benefit most from passing surcharges onto customers.

He’s probably right. When presented with surcharges, customers will have to grin and bear them, choose another payment method or take their business elsewhere. Most people are unlikely to switch lawyers, insurance providers or contractors (or gyms, for that matter) because of a processing fee.

The risk of defection – or at least expressing your displeasure online – appears higher for restaurants, hardware stores, cleaners, hair salons and other establishments that are more commoditized.

As much as I love my credit card rewards, I’ll probably pay cash at my favorite pizzeria and use debit at the gym (if and when my wife unfreezes her membership after the virus situation improves). I hope these surcharges don’t catch on too widely, because if they do, it will be bad for credit card companies’ revenues and consumers’ rewards balances. 

Have a question about credit cards? E-mail me at and I’d be happy to help.

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