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All You Need to Know About Credit Card Merchant Fees

If you’re a frequent credit card user, you may have noticed that you often get charged more than the actual price of the item you’re buying. You’ll sometimes be notified about this fee in advance, but it’ll be an unpleasant surprise at other times. Let’s take a closer look at these credit card surcharges and what you, as the consumer, need to know.

Why merchants charge “swipe fees”

Credit card surcharges have been a hot-button topic among retailers and credit card companies for years. The credit card issuers, like Visa and Mastercard, bill the retailer for the payment service they provide, and the retailers then pass a portion of this charge on to their customers. Swipe fees can be as minimal as 1.5% of the purchase, or as much as 3%. Some merchants will pass the entire credit card processing cost onto the customer. Others will require a minimum sale amount for all credit card purchases.

Are credit card surcharges legal?

According to a 2017 U.S. Supreme Court ruling, surcharges are protected as a form of free speech. However, there are restrictions on how they can be applied. Merchants charging a credit card swipe fee are required to:

  • Clearly disclose the fact that there is a surcharge prior to the transaction
  • Display the credit card surcharge on the receipt
  • Keep surcharges below 4% of the transaction, or the fee the merchant pays to the credit card companies, whichever is less

In addition, if the retailer chooses to impose a minimum purchase requirement for all credit card purchases, this amount cannot exceed $10. The minimum also cannot be set higher than the amount set by other merchants using the same credit card network.

It’s also important to note that credit card surcharges are legally protected, but debit card surcharges are not. You should never be charged a fee for paying with a debit card, even if you choose “credit” on the payment terminal when completing the transaction.

States on credit card surcharges

While it’s legal under federal law to add a surcharge to purchases made with credit cards, some states forbid the practice. As of Nov. 1, 2022, the following states, and Puerto Rico, have laws prohibiting merchants from charging these fees:

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

In addition, Minnesota prohibits merchants from imposing surcharges on their own brand’s credit cards. For example, Macy’s cannot impose a surcharge on a purchase made with a Macy’s card.

What happens when a merchant breaks the rules?

Unfortunately, retailers frequently break the rules by charging a swipe fee in a state where this is not allowed, charging more than is legally permitted or imposing a fee without informing the consumer. This is more common among small businesses that cannot afford to receive ongoing guidance from a legal team.

Often, the law is broken without malicious intent: the merchant is simply unaware of, or does not understand, the latest version of the law. If you find yourself on the consumer end of a broken credit card surcharge law, you can politely let the merchant know. You’ll be doing them a favor, as it’s in their best interest to comply with all regulations to avoid issues with the credit card companies and law enforcement agencies.

Sometimes, though, the merchant is well aware of the law and consciously chooses to disregard it. If you notify a retailer that they are engaging in illegal practices and they ignore your advice, there are additional steps you can take. Report violations to the credit card network by calling the number on the back of your card or submitting an online complaint through their website.

Key takeaways for the consumer

As a consumer, it’s important for you to know that your credit card swipe will cost the merchant a fee. You may be charged a swipe fee to help cover this cost, but this has limitations and is not allowed across all 50 states. Finally, you need to be informed of this charge before you pay for your purchase.

Credit card surcharges are usually legal, but you need to know your rights as the consumer. Let this guide keep you in the know on credit card merchant fees.