As the U.S. moves toward a cashless economy, the subject of merchant fee charges when processing credit card payments becomes more topical.

Most businesses will take on any merchant fees that come along with processing credit card payments. However, some pass this fee to the consumer.

Convenience fees and surcharges: Common fees businesses charge

In short, merchant fees are legal in most states as long as the business follows the necessary protocols. But before diving into the specifics, it’s important to distinguish between the two kinds of fees that a business can charge: convenience fees and surcharges.

A convenience fee is charged when a customer uses a form of payment that isn’t customary for the business. For example, a business that typically accepts online payments may offer the option to pay by phone for a fee. Convenience fees are legal in all 50 states but must be clearly communicated at the point of sale. Additionally, a convenience fee can only be imposed if there’s another preferred form of payment as an option.

When a business charges a fee for a form of payment, whether in person, online or by phone, it’s called a surcharge. Credit card surcharges are applied when you use your credit card to make a payment. In states where surcharges are legal, they must be clearly displayed at the point of sale and on your receipt. Regulations for surcharges are U.S.-specific, and merchants are prohibited from imposing surcharges on card payments abroad (with the exception to this rule being Canada).

Who can charge for using a credit card?

You may be wondering why a seller would charge you a fee if you’ve already paid for your purchase. The reason most sellers charge fees boils down to how credit card transactions work.

Card issuers charge a merchant fee whenever you use your credit card. The merchant is expected to cover this fee to process credit card payments. However, those fees can add up. For a business to avoid paying that fee every time someone uses a credit card, the fee is passed on to the consumer in the form of a surcharge.

While some merchants don’t know they can charge extra, many avoid it simply because they value their customers. It can also present a hassle for certain businesses to figure out how to impose the charges. Instead, many businesses take on the cost of processing credit card payments as a part of their overhead.

Gas stations, for example, fall under the category of businesses that can charge convenience fees and surcharges. However, the reason you are paying more with a credit card at the pump may come down to a game of semantics.

How much can a business charge for using a credit card?

When a business chooses to impose a credit card surcharge, there are protocols that have to be followed. For one, the business has to notify the appropriate credit card associations and clearly disclose that it charges a fee for the use of a credit card. Credit card surcharges can’t exceed the cost of accepting the card or four percent, whichever is the lowest amount, even if it costs the business over that amount to process your credit card payment.

Convenience fees work similarly as they are meant to help a business cover processing costs. Convenience fees usually range between two and three percent of the purchase price. Both of these fees are meant to help a business make up for any processing fees it may have to pay when you make a payment. For this reason, fees should not exceed the processing fee amount. If businesses attempt to charge more, they should be reported to your card issuer.

Surcharge legality by state

Credit card surcharges are handled differently in each state. Here’s a breakdown of what you can expect from businesses around the country.

State The legality of credit card surcharges State law synopsis
Alabama Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Alaska Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Arizona Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Arkansas Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
California Illegal, except for charges approved by the California Public Utilities Commission Retailers may not impose credit card surcharges but may offer discounts for payment by cash, check or other methods unrelated to credit cards. Charges for payment by credit card that are approved by the California Public Utilities Commission are allowed.
Colorado Illegal Credit card surcharges may not be added to any sales or lease transactions. Discounts may be offered for payment by cash, check or other methods unrelated to credit cards, but must be clearly disclosed and offered to all customers.
Connecticut Illegal Credit card surcharges may not be applied by any seller, however, sellers may set a minimum purchase amount. Sellers may also offer discounts for payment by cash, check or other methods unrelated to credit cards.
Delaware Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
District of Columbia Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Florida Illegal Credit card surcharges may not be added to any sales or lease transactions. There is no statute on discounts for different payment methods.
Georgia Legal Convenience fees can be charged if other payment options without fees are offered. There is no statute on discounts for different payment methods.
Hawaii Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Idaho Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Illinois Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Indiana Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Iowa Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Kansas Illegal Credit card surcharges may not be added to any sales or lease transactions. There is no statute on discounts for different payment methods.
Kentucky Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Louisiana Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Maine Illegal, except for governmental entities Credit card surcharges may not be added to any sales or lease transactions. Governmental entities may charge surcharges if they are clearly disclosed before payment and there is no statute on discounts for different payment methods.
Maryland Legal Sellers may offer a cash discount for payment by cash.
Massachusetts Illegal Credit card surcharges may not be added to any sales transaction. Sellers may offer discounts for payment by cash, check or other methods unrelated to credit cards.
Michigan Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Minnesota Legal Sellers may impose a credit card surcharge of no more than 5 percent of the purchase price. Surcharges must be clearly posted and communicated before payment. Sellers may not impose surcharges on their own branded credit cards and there is no statute on discounts for different payment methods.
Mississippi Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Missouri Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Montana Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Nebraska Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Nevada Legal Sellers may offer discounts for payment by cash, check or other methods unrelated to credit cards.
New Hampshire Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
New Jersey Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
New Mexico Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
New York Illegal Credit card surcharges may not be added to any sales transaction. There is no statute on discounts for different payment methods.
North Carolina Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
North Dakota Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Ohio Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Oklahoma Illegal, except for sellers registered with the U.S. Treasury Department as money transmitters Credit card surcharges may not be added to any sales transaction. Sellers may offer discounts for payment by cash, check or other methods unrelated to credit cards
Oregon Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Pennsylvania Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Rhode Island Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
South Carolina Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
South Dakota Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Tennessee Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Texas Illegal, except in the case of a government entity or private school Credit card surcharges may not be added to any sales transaction. There is no statute on discounts for different payment methods.
Utah Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Vermont Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Virginia Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Washington Legal Sellers may offer discounts for payment in cash.
West Virginia Legal There is no prohibition for credit card surcharges and no statute on discounts for different payment methods.
Wisconsin Legal Sellers may offer discounts for payment by cash, check or other methods unrelated to credit cards.
Wyoming Legal Sellers may offer a discount of no more than 5 percent for payment by cash, check or other methods unrelated to credit cards.

The bottom line

As a consumer, it can be rather frustrating to face extra fees for a business to cover the cost of processing credit card payments. And while credit card surcharges aren’t legal in a few states, they are legal in the majority of the U.S. Whether or not a merchant can charge these fees all boils down to local laws and parameters provided by the payment processing network.