As anyone who runs a business knows, whenever a customer swipes a credit card, the business is charged a fee to process that payment. In an increasingly cashless world, this means more and more would-be revenue going toward these fees every year, leading many merchants to wonder if they should be passing on that expense to their customers by charging a credit card processing fee, called a surcharge.
But is charging a credit card processing fee legal?
The answer, as with most business matters, is “It depends.”
The benefits of adding a surcharge extend beyond savings in credit processing costs. Doing so also encourages customers to pay in cash. More cash payments means more on hand for your business to use right away, and a reduced risk of chargebacks associated with credit card payments.
Imposing a surcharge, however, is not a viable option for all businesses.
Surcharges are prohibited in 10 states: California, Connecticut, Colorado, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Implementing a surcharge in the remaining 40 states isn’t as simple as tacking on an additional fee when a customer comes up to pay, either.
Major credit card providers set their own policies, which merchants must abide by. Mastercard, for example, requires customers be made aware they will be charged a surcharge at the point of sale, sets a maximum surcharge rate of 4%, and mandates that all receipts must indicate the surcharge and its amount.
While surcharges are not permitted in every state, there are ways merchants across the country can incentivize cash payments and lower their processing costs.
No cost processing programs, sometimes called cash discount programs, yield much of the same results as a surcharge, and are legal in every state.
Through a no cost processing program, customers are charged a service fee, normally between 3.5% and 4%. Those paying cash are discounted that fee, while those using a credit card cover their own processing costs.
These programs are nothing new, and present an excellent cost-saving option for merchants, no matter what state they conduct business in. With reduced costs and the opportunity for customers to receive a discount simply by changing their payment method, it's easy to see why such programs are gaining in popularity. In fact, you’ve probably already encountered a no cost program on your own, perhaps the last time you picked up the check at a restaurant, or paid at the pump!