As a business owner in 2025, managing payment processing costs has become more critical than ever, with credit card interchange fees continuing to rise. Merchants now have multiple options to offset these expenses: surcharging, convenience fees, cash discounting, and traditional absorption models. This comprehensive guide focuses on two popular approaches—surcharging and convenience fees—to help you make an informed decision for your business.
With recent legal changes and updated card brand rules affecting both surcharging and convenience fee implementation, staying current is essential for compliance. As payment processing experts since 2011, IntelliPay provides the latest information on these cost-recovery strategies and helps you determine which approach aligns with your business model and customer expectations.
Contents
Understanding Credit Card Surcharging
Q: What is a credit card surcharge?
A: A surcharge is an additional fee specifically applied to credit card transactions to offset processing costs. Key characteristics include:
- Applied only to credit card transactions (not debit or prepaid cards)
- Generally calculated as a percentage of the transaction amount
- Capped at 3% or the merchant’s actual cost, whichever is lower
- Must be clearly disclosed as a separate line item
- Applicable to both in-person and online transactions
- Subject to state regulations and card brand rules
Q: Am I legally allowed to add a surcharge to credit card transactions?
A: If you are a merchant in the United States or its territories, and your business is not in Connecticut, Maine, New York or Massachusetts, you are legally permitted to add a surcharge to certain credit card transactions. However, you must comply with card brand, consumer disclosure, and other requirements.
Q: What factors should I consider before I choose to surcharge?
A: Before you decide to apply a surcharge fee on credit card transactions, you should consider the following:
- How it may impact your customer’s experience
- What your competitors in the industry are doing
- Card network surcharging rules
- Legal requirements for your state and your profession
- Accounting implications
- Staff training
Implementation Questions
Q: What are the rules regarding disclosure to customers?
A: If you choose to apply a surcharge fee, you must disclose it as a surcharge fee and inform customers about it at the point of entry and the point of sale – whether online or in-store – as well as on every receipt as a dollar amount.
Q: Are there any restrictions on surcharging in my state?
A: Could be. At present, four states and one territory have surcharging prohibitions. These are Connecticut, Maine, New York, Massachusetts, and Puerto Rico.
Most states allow businesses to add surcharges to credit card payments, but some specific rules and limits vary by state:
Colorado:
Merchants can surcharge up to 2% or the actual processing cost, whichever is less, and must disclose the surcharge to customers.
New York, New Jersey, Nevada, South Dakota:
-
New York: As of February 2024, New York’s law is stricter: merchants cannot list a separate surcharge line item, effectively banning surcharging as commonly understood, even though the law technically allows surcharges up to the merchant’s processing cost.
-
New Jersey and Nevada: Surcharges cannot exceed the merchant’s processing cost and must be disclosed.
-
South Dakota: As of March 2025, there are no separate state limits beyond federal/card brand rules, so surcharges must not exceed the processing cost.
Texas:
Texas bans surcharging but allows convenience fees, service fees, and cash discounts. A 2018 federal court decision (Rowell v. Paxton) ruled parts of this law unconstitutional; enforcement of the surcharge ban has mainly been blocked at the state level.
Kansas:
Anti-surcharging laws were overturned, but merchants must include credit card fees in the listed price to impose a surcharge.
Georgia:
Convenience fees are allowed only if alternative payment methods are offered.
Minnesota:
Surcharges are allowed, but starting January 1, 2025, unavoidable fees must be included in the advertised price unless the customer can reasonably avoid them.
Maine, Connecticut, Massachusetts, Puerto Rico:
Surcharging is prohibited in these states and territories.
Montana:
Surcharges are allowed up to 3%, and merchants must disclose the fee before the transaction.
Other States:
In most other states, surcharging is legal as long as the fee does not exceed 3% (or the actual processing cost), and customers are informed in advance. We recommend you talk with counsel about your state and industry.
Q: Can a surcharge be added to debit card transactions?
A: No. Surcharge fees are permitted only on credit card transactions. Therefore, purchases made through debit cards or prepaid cards cannot be surcharged.
Q: Is surcharging allowed when the customer using a debit card chooses “credit” at the POS terminal?
A: No. In this situation, a surcharge fee cannot be added to debit card transactions.
Q: Are any limits imposed on the surcharge amount?
A: Yes. Effective April 28, 2023, you can assess a credit card surcharge only up to the merchant discount rate for the applicable credit card or up to a maximum of 3%.
Q: Am I allowed to surcharge one credit card brand, not the others?
A: Yes. You have to choose a brand or product level. A brand-level surcharge is where one fee is charged across all credit cards from a card brand. Product-level surcharging allows you to pick and choose the types of cards to surcharge. (Business credit cards vs. consumer charge cards)
Implementation Best Practices
Successful surcharging implementation requires careful planning and execution. Based on our experience with thousands of merchants, we recommend these best practices:
Customer Communication
- Provide clear signage at business entrances
- Train staff to explain the surcharge when customers ask
- Offer alternative payment methods without surcharges
- Consider implementing gradually with advance notice to customers
Technology Requirements
- Ensure your POS system correctly identifies card types (credit vs. debit)
- Configure receipt printing to show surcharge amounts separately
- Set up proper accounting practices for reconciliation
- Use compliant payment gateways that support surcharging
Compliance Checklist
- Register with card networks at least 30 days before implementation
- Post required signage at points of entry and sale
- Ensure receipts itemize the surcharge amount
- Keep the surcharge amount at or below 3%
- Document your surcharging program implementation
- Check local requirements
Common Implementation Pitfalls
- Applying surcharges to debit cards (prohibited)
- Failing to register with card brands
- Inadequate disclosure to customers
- Inconsistent application across locations
- Improper receipt documentation
Fee Comparisons
Q: What is a Convenience Fee?
A: A convenience fee is fundamentally different and operates under distinct rules:
– Applied when offering an alternative payment channel that provides convenience
– Typically used for online, phone, or app-based payments
– Can be applied to all payment methods within that alternative channel
– Usually a flat fee rather than a percentage
– Must represent a genuine alternative to your standard payment method
– Must be disclosed upfront before payment
Q: How is a surcharge different from a convenience fee?
A:: The surcharge is the fee a customer pays simply for using a credit card, which is a percentage of the transaction amount not exceeding 3%. However, a convenience fee is only allowed on online and phone payments (“Card Not Present” transactions), and it is a fixed amount and not a percentage.
Q: If I have store operations in multiple states, which include some states where surcharging is prohibited. Does this mean I am not allowed to surcharge in any state where I operate?
A: Generally, credit card companies do not prevent merchants from adding a surcharge fee in states where it is permissible, even when it is prohibited in other states.
Q: Can I apply the surcharge fee on international credit card transactions?
A: No. You can only surcharge on credit card purchases for your customers in the United States or U.S. territories.
Q: Am I permitted to offer a “cash discount” program?
A: A compliant cash discount or Dual Pricing program requires merchants to post and advertise credit prices. Credit prices include the costs of processing credit cards. When a customer pays with cash or an in-store gift card, the price taken at the point of sale decreases. Legal cash discount programs present a clear receipt detailing the fee or cash discount amount. Cash discount programs are not credit card surcharges because they do not levy a fee added to a credit card transaction.
A dual pricing program may be compliant when it shows the “cash price” and “credit card price” side by side equally prominently whenever a price is quoted or posted. For information on how dual pricing compares to surcharging, read: Surcharging Vs Dual Pricing- What Small Business Owners Need to Know Now (2025)
Other Questions
Q: Can I include the surcharge fee when processing a chargeback?
A: Yes. The chargeback can be for the total transaction amount, including the amount of the fee.
Q: If I do not disclose the surcharge to a customer at the point of sale, can the credit card issuer pursue compliance?
A: Yes, it can.
Q: Can I apply a different surcharge fee to different credit card transactions?
A: Yes, but you’ll have to choose the product level. Product level allows you to pick and choose the types of cards. (Business credit cards vs. consumer charge cards)
Q: Are there other fee-based options?
A: Yes, other fee-based options, such as site and convenience, allow you to charge a fee on all transactions. A service fee can is an option for qualifying government entities or educational institutions.
Why Choose IntelliPay for Your Surcharging or Convenience Fee Program in 2025
As the payment landscape continues to evolve, IntelliPay remains at the forefront of compliant fee-based payment solutions. Our platform offers:
- Automatic Compliance Updates: Our system automatically adjusts to the latest card brand rules and regulatory changes.
- Multi-Channel Support: Implement surcharging or convenience fees across in-store, online, mobile, and virtual terminals.
- Customer-Friendly Experience: Clear disclosures and transparent processes maintain positive customer relationships.
- Expert Implementation: Our specialists handle the setup, including card brand registration and staff training.
Ready to Lower Your Processing Costs?
Get Started in Three Easy Steps:
1. Free Assessment: Submit your processing statement for a no-obligation analysis
2. Custom Solution Design: Receive a tailored recommendation for your business model
3. Seamless Implementation: Our team handles technical setup, compliance, and training
Request Your Free Cost Recovery Analysis – Our payment specialists will contact you within one business day to discuss your options.
*Still have questions about which fee model is right for your business? Call us at 855-872-6632 option 3 for immediate assistance.*
