Credit Card Surcharges
Is This Even Legal? What About Minimum Purchase Amounts?
If you like paying with plastic, you’ve probably shopped with merchants that add surcharges to credit card purchases. This may lead you to wonder: Is that even legal?
The short answer is yes. Starting in 2013, it became legal to charge customers extra for using a credit card. Retailers can also require a minimum purchase amount when you use credit cards. But merchants need to follow specific rules when adding credit card surcharges.
Where the Laws Came From
If you’re surprised that retailers can do this, you’re not alone. The laws allowing credit card surcharges and minimum purchases are relatively new.
Surcharges: Merchants won the right to add surcharges or “checkout” fees beginning in January of 2013 after a class action lawsuit against card issuers and banks. But most merchants were (and continue to be) slow to adopt credit card surcharges. Three potential explanations are:
- Some merchants, like many consumers, may not know they can charge extra.
- Merchants are hesitant to annoy customers or create the perception that they’re nickel-and-diming customers.
- Surcharging in some industries might be more complicated than it's worth. For example, when accepting payments from clients who use health insurance, a surcharge could be problematic.
Minimum purchase: Retailers are also allowed to set minimum purchase requirements after 2013 due to the Durbin Amendment (part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed as a result of the financial crisis). Initially, the minimum was more than $10, but that number may increase in the future with inflation.
In the past, retailers weren’t allowed to set minimums or add surcharges. But some merchants were “unofficially” setting minimum purchase amounts. Those practices were not necessarily illegal at the time, but they were a violation of the merchant’s agreement with their payment processing services. That said, merchants rarely face consequences for breaking those rules.
States Weigh in on Credit Card Surcharges
While it’s legal under federal law to add a surcharge to credit card transactions, some states prohibit the practice. Ten states already had laws on the books before 2013. Now that merchants can officially use surcharges, other states are considering outlawing the practice as well.
The states that make credit card surcharges illegal as of this writing are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Puerto Rico also outlaws surcharges.
Restrictions on Merchants
If merchants decide to use credit card surcharges, they must meet certain requirements:
- Merchants must clearly disclose the fact that there is a surcharge to you before any transaction.
- Your receipt must show the credit card surcharge.
- The surcharge can’t exceed the amount the retailer pays or 4% (you pay the lesser of these two, typically 2% to 3%).
Debit cards surcharges? Surcharges and minimum purchase requirements are only allowed for credit card purchases—not debit card transactions. That’s still the case if you sign for a debit card transaction instead of using your PIN (and it’s processed as a “credit” transaction).
For more details, see: Debit Card Minimums—Illegal or Just Annoying?
Breaking the Rules
Merchants regularly break the rules. Regulations are confusing for everybody, and some merchants intentionally choose not to follow them. So, what can you do if somebody imposes an illegal credit card surcharge?
First, keep in mind that the business owner might not be familiar with the rules and laws regarding credit card surcharges. Merchants have numerous rules and regulations to keep track of, and cutting their own revenue is not on the top of their list of priorities.
If a small business or mom-and-pop shop charges unauthorized fees, just let them know that you think they may be breaking the rules. It’s in their best interest to know that so they can avoid problems with credit card companies and regulators.
Large companies should be well aware of the rules and receive ongoing guidance from legal and corporate teams.
Any business with a loyal following can notify customers know that they prefer not to take credit cards, and the business might even be able to offer discounts for cash purchases.
How to Report Problems
If a business is blatantly breaking the rules and you want to take meaningful action, you can report the business to credit card companies. Those payment networks have signed agreements with merchants that prohibit such activity. Report violations by calling your card issuer (using the number on the back of your card) or submit a complaint online:
When businesses blatantly break the law by adding surcharges in states that prohibit them or surcharging more than is allowed under federal law, you can report problems to your state’s Attorney General.
Why businesses take the risk: Why would a merchant be willing to break rules and laws for a few extra bucks? Businesses have to pay fees to accept credit cards, generally ranging from 1% to 3% of every transaction (fees for debit cards are usually lower than credit card fees), and they may pay additional per-transaction costs. In some industries, especially with small purchases, it’s hard to make a profit when customers pay with a credit card.
If you want to support small businesses and local businesses, try to avoid paying with credit cards and tell your friends to do so. Less-expensive payment processing helps merchants keep more of what they charge, and they won’t be so tempted to bend the rules.