Home » Credit Card Surcharge – How it Works and How to Calculate It

According to the Federal Reserve, customers prefer using their credit cards at checkouts. Their 2024 Diary of Consumer Payment Choice report shows that more than 60% of payments are made with credit (32%) and debit cards (30%). This is convenient for the consumer but leaves merchants facing extra processing costs. These fees can eat into profits — unless businesses opt for a strategy like credit card surcharging.

This article breaks down what a credit card surcharge is, how it works, legal rules and regulations about surcharging, and everything else merchants need to know to implement it at their place of business. 

Let’s start from the top.

What is a credit card surcharge?

A credit card surcharge is an additional fee that a business adds to a customer’s bill when they choose to pay with a credit card instead of cash or other forms of payment. It is designed to cover some of the costs the merchant incurs for processing credit card transactions.

Imagine you’re at a local bookstore, and your total purchase comes to $100. If the bookstore implements a credit card surcharge of 2%, you will be charged an additional $2, making your total $102 if you opt to pay with a credit card. 

Credit card processing fees can be significant, especially for small businesses. Adding a surcharge helps reduce this financial burden. It also encourages the use of cash or debit cards, which typically have lower processing fees.

Laws and regulations around surcharging

Adding a merchant surcharge is legal in most states. But that wasn’t always the case.

Initially, many states banned or restricted surcharges to protect consumers from additional fees. However, as credit card usage became more prevalent and the financial burden on merchants grew, these laws began to change. 

While surcharging is more acceptable now, different states have different rules and requirements. Each merchant should get familiar with their local laws before implementing a surcharge program.  

States in which it is illegal to add a credit card surcharge

Currently, credit card surcharging is illegal in the following states and territories:

• Connecticut
• Maine
• Massachusetts
• New York (as currently interpreted)
• Puerto Rico

Some other states also have anti-surcharging laws on the books, but they are either limited or not enforceable. 

If you’re in one of these states, look into a cash discount program instead.

International surcharging regulations 

Around the world, the regulations governing credit card surcharges vary significantly from one country to another:

• European Union: In the EU, surcharges on credit and debit card payments have been banned since 2018 to promote transparency and fairness for consumers.
• Australia: Australian regulations allow merchants to apply a surcharge, but it must reflect the actual cost of processing the payment, preventing businesses from profiting from these fees.
• Canada: In Canada, merchants are allowed to add a surcharge, but they must clearly disclose this to consumers before the transaction is completed.
• United Kingdom: Following the EU’s lead, the UK also prohibits surcharging on most payment methods to ensure consumer prices are clear and fair.

If you need or have an offshore merchant account to operate internationally, it’s crucial to understand and comply with the specific surcharging rules in each market. It helps avoid legal complications and maintain trust with customers.

Card network rules

Credit card networks like Visa, MasterCard, Discover, and American Express have specific guidelines for merchants who wish to implement surcharges. 

Common rules around surcharging include:

• Notification: Merchants must notify the credit card network and their payment processor at least 30 days before beginning to surcharge.
• Transparency: Surcharges must be clearly communicated to customers both at the point of entry and at the point of sale. The same goes for online retailers, which must disclose the fee before the customer completes the purchase process (usually at the checkout page).
• Fee limitations: The surcharge amount cannot exceed the merchant’s actual cost of processing the credit card payment. The exact rate can depend on several factors, including the merchant’s processing agreement and the credit card network’s regulations.
• Equality: Merchants are not allowed to discriminate between different issuers or card types — the same surcharge must apply to all transactions of a similar nature.
• Debit card exception: Merchants are not allowed to add a surcharge to debit card transactions in any scenario.
• Disclosure: To maintain transparency, all surcharges need to be listed as a separate line item on the invoice and disclosed as a merchant fee (example below). 

We also recommend maintaining detailed records of surcharge practices and amounts for potential review by credit card networks or regulatory bodies.

The highest a credit card surcharge fee can go

In the United States, the maximum allowable surcharge fee is capped at 4% of the transaction amount. 

These caps are meant to ensure that surcharges only cover the merchant’s actual credit card processing costs and do not turn into a profit-making mechanism.

Making sense of all of these rules can be daunting. Talk to a SecureGlobalPay rep today to get a free consultation and recommendation based on your business type and state.

How to calculate the surcharge fee you should apply?

Below is a step-by-step guide to help you determine the appropriate surcharge fee for your transactions.

Step #1: Determine your processing costs

Start by calculating the average cost you incur for processing credit card transactions. This will generally involve fees such as the interchange fee, assessment fee, and any additional charges from your payment processor. 

Usually, the average percentage and fixed costs for a typical transaction vary based on the type of card used (credit, debit, gift cards…) and your merchant service agreement.

Start by calculating your average cost of processing credit card transactions. For instance, let’s say your payment processor charges a 1.5% interchange fee, a 0.3% assessment fee, and a $0.10 transaction fee for each credit card payment. If your average transaction is $50, the fees would be:

• Interchange fee: 1.5% of $50 = $0.75
• Assessment fee: 0.3% of $50 = $0.15
• Fixed transaction fee = $0.10

Adding these together, your total cost to process this $50 transaction would be $0.75 + $0.15 + $0.10 = $1.00 — or 2% of the transaction amount.

Step #2: Review legal caps

Check the maximum legal surcharge cap in your jurisdiction, which is commonly set at 4%. So even if you have a high-risk merchant account with an average processing cost of, let’s say 4.3%, your merchant surcharge fee will still need to be capped at the aforementioned 4%. 

Step #3: Set a reasonable surcharge rate

The surcharge rate should balance your need to cover your costs with customer satisfaction. In our example, while you could theoretically charge up to 4%, you might set the surcharge at the exact cost amount of 1.9% — or even slightly lower — to maintain fairness and competitive prices.

How to implement a merchant surcharge program

The merchant surcharge program is a way for merchants to pass along credit card processing fees to their customers.

Any business that is considering implementing surcharges should follow these steps:

1. Understands legal requirements in your jurisdiction.
2. Notify your credit card processor and networks.
3. Determine the surcharge amount.
4. Update your POS system to automatically apply surcharges to credit card transactions.
5. Train your staff on how the program works.
6. Clearly communicate the surcharge to customers through signage.

Simplify merchant surcharge implementation with SecureGlobalPay

SecureGlobalPay has everything you need to implement credit card surcharging:

• Dedicated account managers will guide you throughout the whole process — from equipment and signage setup to notifying card networks
• A free POS equipment that is ready to securely process surcharged transactions
• A secure payment gateway for online retailers which can integrate with all major shopping carts and be configured to accept and process surcharged card transactions 
• The option to pivot to other no-fee processing programs like dual pricing or convenience fees 
• No long-term contracts or commitments
• The ability to cancel your merchant account without closure fees

We’ve been helping businesses accept and process payments for more than 20 years. Any problems you encounter, there’s a good chance we’ve seen it — and helped solve it.

Learn more by sending a question to partners@secureglobalpay.net or go straight to our merchant application form.