Is it legal to charge customers a credit card processing fee? Extra charges on the use of credit cards to purchase things are called a credit card surcharges.
Charging additional credit card fees to customers may not always be legal. When it comes down to the decision on whether or not merchants should charge credit card processing fee, they end up questioning whether it is illegal or not.
Credit Card Processing Fee- What Do You Need To Know?
Credit card surcharge fee is the amount that is added to a credit card transaction. This amount is usually added to a customer’s bill to compensate for the credit card processing fees that businesses are required to pay.
For the most part, such fees are negligible but can increase at the business owner’s discretion. All business owners who offer their customers to pay using credit cards are required to pay a credit card fee which depends on the type of credit card and processing system they have set up in their store.
Today, more and more customers are using credit cards to pay for things. In the end, all the processing fees can pile up on the business owner which can amount to a lot of money. Therefore, some business owners choose to pass on the fees to the customers to save money.
Types of Credit Card Fees
There are different types of credit card fees charged by businesses. Knowing the types of credit card fees is imperative. Here are all the types of credit card fees merchants may require their customers to pay:
Processing Fee
The processing fee is when a business owner charges additional fees to compensate for the processing fee they must pay when customers pay using credit cards. This is typically 3-4% of the total transaction. Business owners try to make the customers pay for it to save money. To avoid processing fees, businesses can initiate a card-only policy so that customers are discouraged to use credit cards when buying from them.
Credit Card Surcharge
This is an optional fee. In this case, the businesses have a choice of whether or not they want to add the fee to their customer’s transactions. Businesses need to consider whether it is a good decision or if it will push customers away to competing businesses.
However, if a business charges a credit card surcharge, they are required to inform their customers before adding the fee to their transactions. The surcharge needs to be added as a separate charge item.
These surcharges can be found in different forms, such as Brand Fees and Product Fees. Brand Fee is when businesses only implement a charge on specific credit card processing networks. On the other hand, a product fee is when there is a charge on a specific type of card, not the processing network alone.
Convenience Fee
The payment processing networks determine the convenience fee, and networks have different policies regarding credit card fees.
The convenience fees can be added on all non-standard payment methods other than on income tax, which is also limited to some states.
Mastercard
The convenience fees can only be charged by government agencies and other educational institutions.
American Express
Rental establishments, government agencies, utility companies and educational institutes can charge credit card convenience fees
Discover
If a Merchant charges convenience fees to other credit cards from other issuers, only then will they be allowed to charge Discover cardholders.
Minimum Purchase Requirements
If a business is not charging a surcharge, sometimes they will set minimum purchase requirements which help them minimize the loss of their profits.
Many businesses believe that it is not worth paying the processing fee for small purchases as it is more of a loss than a profit for the business in the long run. Moreover, if the business sets a minimum purchase limit, the law only requires informing the customer afterward. Despite not being a requirement, it is better for businesses to disclose the information to customers before the purchase.
Furthermore, there needs to be a set minimum transaction amount and no caps on the maximum amount so customers are encouraged to spend as much money as they want. The minimum transaction is, required to be under $10, so businesses do not take advantage of the minimum requirement.
Which States Prohibit Credit Card Processing Fees?
Some states have strictly prohibited surcharges or convenience fees. Here are the states that deem it illegal to charge an extra fee:
- Colorado
- Connecticut
- Kansas
- Maine
- Massachusetts
There are some exceptions when it comes to charging credit card processing fees in these states. For example, Government institutes can impose credit card surcharges, but no other businesses can. Moreover, to discourage card payments, these businesses can offer discounts to all customers who wish to pay with cash. This way, businesses can save significant money on the processing fee and even offer exciting discounts to customers.
This can also prove to be a great way to boost sales. Customers will come to your business just to avail of the discounts.
Should Businesses Charge A Credit Card Processing Fee?
If your business is located in a state where it is not illegal to charge a credit card processing fee, then you can consider charging it. If your business is not doing too well and the credit card discounts are not being kind on you then you can consider charging an additional fee to compensate in turn for the discounts they receive.
However, customers are not very happy when they have to pay extra fee for using their cards. If you think this will upset your clientele, then it is best to avoid charging it so that you don’t push your customers away and create a negative reputation for your business.
Frequently Asked Questions
Here are some frequently asked questions to help you learn more about credit card processing fees:
Does The Surcharge Fee Apply To Debit Cards?
No, debit card users do not have to pay surcharge fees.
Are Business Owners Required To Notify Their Customers Beforehand?
Yes, business owners must inform their customers before including the surcharge.
Do All Types Of Credit Cards Have The Same Surcharge?
Depending on the merchant, there can be varying surcharges for different cards.
In Conclusion
Most customers are completely put off when they are asked to pay more for a purchase just because they are using their credit card. Having to pay the extra money and not knowing that they are required to can be very annoying for customers.
This can also significantly impact business; customers may not return to you and opt for a business that does not charge them a credit card surcharge. If you are in a situation where a business owner is charging you credit card surcharges, then you need to consider whether it is worth paying. If you are getting rewards on the extra payments, or can afford the fee and it is not entirely off putting, then there is no harm in paying the additional amount to complete your purchase.
