Passing on Credit Card Fees to Customers? Here’s How to Do It Legally in 2023

Passing on Credit Card Fees to Customers? Here’s How to Do It Legally in 2023

The high cost of credit card processing is a point of contention globally. No one likes credit card fees. In the US, surcharging has been fought in court and card issuers (in some states) have had to be flexible.

Sadly, that doesn’t mean lower fees. It just affords some flexibility. Small business owners now have the option to pass those fees on. The decision is whether to pay them in-house or share them with customers.

Most state laws in 2022 allow merchants to pass credit card fees to customers. In this article, we will discuss a few ways to do this, the pros and cons, and where it’s legal. 

Let’s get started.

How to pass on credit card fees to customers legally

There are a few ways of legally passing on credit card fees to customers. Some are direct, and some are indirect. Adding a surcharge to cover the credit card fee is direct. Incentivizing cash payments is indirect.

The four most common ways to pass on or evade processing costs are:

1. Cash discounting

The simplest way to avoid transaction fees is to incentivize other payment methods. Cash discounting has long been a favored approach for merchants. It is legal in every state and easy to do.

As the name suggests, merchants offer customers a discount for using cash. That discount is usually what the credit card processing fees would have been. Considering interchange rates and processor fees, it would be somewhere between $0.30 and $0.42.

animated person touching pay on a phone screen text says: considering interchange rates and processor fees, a cash discount would be somewhere between $0.30 and $0.42

The discount, in this case, is not huge. As such, this method doesn’t work for all merchants. It’s extremely common at gas stations, for example. But it may not be as well suited to a high-end retailer.

2. Minimum purchase requirement

Setting a minimum purchase requirement is another legal way to limit credit card users. Merchants set a minimum amount to accept a credit or debit card transaction. Any amounts below the requirement must be paid in cash.

Small businesses with low transaction amounts tend to adopt this practice. Convenience stores, for example. Low-volume merchants usually have to pay a flat fee plus a percentage of the transaction amount. This results in extremely high processing costs.

Unlike cash discounting, this doesn’t impact the bottom line.

3. Credit card surcharging

Surcharging is the most hotly debated option on the list. Merchants have been fighting for it for decades. Credit card issuers—Mastercard, Visa, American Express, and Discover—have been fighting against it.

This method has customers pay the credit card company fees for their own credit card payments. Merchants pass on the fee responsibility.

Unlike the two previous options, this one is pre-programmed at the point of sale. The merchant account is programmed to add a surcharge automatically. For example, a customer buys a coffee from a surcharging cafe via a credit card transaction. As soon as “credit card” is selected as the payment method, the surcharge fee is automatically added as a line item to the final amount.

4. Convenience fee

Convenience fees are an option that may be available when customers pay via “alternative” methods. Over-the-phone transactions may attract a convenience fee if they’re otherwise typically purchased in person. Most people will have seen convenience fees attached to online ticket sales for concerts or movies.

In some cases, where the payment is taken differently from the usual method, convenience fees could be added. The card brands’ set policies and state laws can also come into play. While it’s tricky to navigate, it is legal in all 50 states.

As it’s only for special “alternative” transactions, it doesn’t cover all credit card transactions, but it helps offset some.

Passing on credit card fees to customers: The pros and cons

As of 2022, cards are the favorite payment method for North Americans. Cash makes up less than 20% of all spending. Even then, its primary use is for purchases under $25.

Having no card processing option is really not an option. So let’s instead look at the pros and cons of passing credit card fees onto customers.


These options give flexibility to merchants with small businesses that simply can’t absorb extra fees.

For surcharging, the benefit is that everything is automatic. Without needing to have a conversation about it, the processing costs are passed on. If the customer doesn’t want this, they can pay instead with a debit card or cash.

Cash discounting, minimum purchase requirements, and convenience fees allow merchants to be selective. It’s reasonable to try and minimize credit card purchases that do not benefit the business. A stick of gum, for example, is not worth absorbing a $0.20-$0.40 fee.


Consumers love paying with their cards. 60% of North Americans prefer using cards, and they’re willing to pay more for the privilege. This could be a pro or a con.

As a pro, consumers should accept surcharging if they are happy to pay more to use their card. However, they could also opt to go elsewhere.

Surcharging is also not easy to set up. Equipment needs to be specially programmed to add surcharges. There are state and federal laws to navigate, and credit card networks enforce disclosure. Merchants have to put up signage in-store to notify customers of surcharging.

Best practices of passing fees on to customers

To implement these practices without disruptions or complaints, it’s important to do the following:

Be honest

In the case of surcharging, it is a legal requirement that signage is installed in-store to notify customers. These signs come from the credit card companies and must be displayed at the entry and terminal.

Merchants should apply the same transparency for cash discounting, minimum spending, and convenience fees. Put up signage so that customers aren’t surprised at the register.

Provide options

Let customers know what options they have when they go to pay. Tell them if cash discounting is available or debit cards are accepted. With options on the table, customers won’t feel forced into taking the fees. It will help them empathize and understand why these options are there. 

Follow the rules

Convenience fees and surcharging are policed by credit card issuers and protected by state laws. Customers can report merchants to the State’s Attorney General in some states. The easiest way to stay out of trouble is to follow the rules.

Never charge above the surcharging limits. Always have the signs up. Do not charge customers surcharges or convenience fees when it is not allowed.

Reduce the burden of fees

Credit card processing fees are unavoidable. It may not always matter to the card issuer who pays, as long as someone does. What’s more, there are merchant account fees to be paid.

With no real way to eliminate the interchange fees, merchant services provider fees are where merchants can really save. Look for providers like Payment Depot that charge no hidden fees, no markups, and offer transparent pricing.

Membership-based pricing can drastically reduce the per-transaction fees for small businesses with high-volume sales. Payment Depot offers monthly membership-based wholesale rates that let merchants save money as they process more transactions. Contact us today to learn more.


As surcharging rules differ across the US, some common questions should be addressed.

Are credit card surcharges legal?

In some states, yes. In others, no.

Which states/territories don’t allow surcharges?

Based on Visa’s July 19th, 2021, Merchant Surcharge Q&A, surcharging is limited or prohibited in:

  • Colorado* (prohibition effective through June 30th, 2022)
  • Oklahoma;
  • Connecticut;
  • Massachusetts; and
  • Maine.

*In Colorado, surcharging is legal, but the fee cannot exceed 2% of the transaction. In all other states, this is 4%.

With various court cases relating to surcharging, a few states still have anti-surcharging laws in place, but they aren’t enforceable. This applies to the following states:

  • California
  • New York
  • Florida
  • Texas
  • Kansas
  • Maine
  • Oklahoma
  • Utah

Do surcharges apply to debit cards?

No. Surcharges can only be added for credit card processing. All debit cards will attract debit card processing fees payable by the merchant.

When the merchant services account gets programmed for surcharging, it automatically recognizes the cards. There is no way around it. Even if a cashier selects “credit card” on the machine, it will recognize a debit card and process the payment accordingly.

How do surcharges differ from convenience fees?

Surcharges are automatic. It’s pre-programmed on the terminal and applied to every credit card transaction.

Convenience fees are manually added by the merchant. They can be added to debit card transactions and credit card transactions. But they are only applicable for “alternative” payments.

A retailer cannot charge convenience fees to accept card payments in-person, for example. However, the retailer may be able to charge a convenience fee if a customer is paying over the phone. Convenience fees are always flat fees. Not percentages.

Check Visa, Mastercard, and American Express policies to learn what is applicable under each card issuer. This can also differ from state to state.

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