When you look at the amount of money that you are spending on credit card transaction fees, it is understandable why many company’s add-on surcharges for credit card payments. Do you know if surcharging is a legal practice?

What is Surcharging?

The practice of surcharging means that a business adds a fee that is imposed on a customer when a credit card is used for a transaction. For example, if a customer makes a purchase using a credit card for payment, then the business might add a percentage, such as 4%, to the amount of the sale.

In this example, if the purchase total is $100 and a 4% surcharge is added to the transaction, then the customer will be charged $104.

Is Surcharging Legal?

In the state of California, surcharging is legal. But, there are a few steps that you need to go through as a merchant if you want to charge these fees. If you want to surcharge your customers, then you need to follow these guidelines:

  • Register with the Card Associations: You need to be registered with the card associations to charge these extra fees. Make sure that you are registered with all of the major credit card companies, including Visa, MasterCard, American Express, and Discover. Your merchant services provider can help with this step.
  • Signage in the Store: Next, you need to make sure that your surcharge policy is on display in the store. The signage needs to be placed at the entry of the store, as well as at the register where the transaction will be processed.
  • Know What You Can Charge: You need to know what you can charge to ensure that you are staying within the legal boundaries. As a business, the most that you can charge is 4%, or whatever you pay for that transaction (whichever is lower).
  • Processing Sale and Surcharge: One other requirement is that the sale and surcharge are processed together. For example, if you are charging 4% on a $100 sale, then the full $104 needs to go out in the same transaction.
  • Receipt Documentation: When the receipt prints from your payment processing terminal, you need to make sure that the surcharge is listed as a separate line item on the receipt.
  • Fee Can Not Be Applied to Debit Cards: Keep in mind that credit cards and debit cards are different forms of payment. This surcharge fee cannot be applied if a customer is paying with a debit card.

Do you have questions about payment processing or surcharges? Call or email me anytime if you need additional information.