Is It Legal to Pass Credit Card Fees to Customers?

A Complete 2026 Guide for Small Business Owners

By Dale Erling 15+ Year Payments & fintech experience | Updated February 20206 | 12-15 Minute read

EXECUTIVE SUMMARY

Credit card processing fees are eating into small business margins more than ever. In 2026, the average small business pays somewhere between 2.5% and 3.5% on every card transaction — that’s $25 to $35 on every $1,000 in sales, before counting any other costs. On $500,000 in annual card volume, that’s up to $17,500 leaving your business every year just to accept payments.

You have three practical ways to address this: surcharging (adding a disclosed fee for credit card use), dual pricing (posting a card price and a lower cash price side by side), and service fees (available only to government, higher-education, and utility merchants — not typical small businesses).

For most small businesses, the right answer is one clearly communicated strategy, paired with a no-fee alternative like cash or ACH. This guide covers what’s actually legal by state, what Visa and Mastercard require, what your signage must say, and how to calculate whether any of this makes financial sense for you.

Why Credit Card Processing Fees Are Getting Worse

Every time a customer swipes, taps, or types a card number, you pay three layers of fees:

• Interchange: Interchange to the bank that issued the card — the biggest piece, set by Visa and Mastercard, and it varies by card type. A basic debit card might generate 0.05% + $0.21; a premium travel rewards card could run 2.4% + $0.10 on the same transaction.
• Network assessments: Network assessments to Visa, Mastercard, Discover, or Amex — smaller individually, but they add up across thousands of transactions.
• Processor markup: Processor markup — this is where there’s the most room for negotiation, and where many small businesses overpay.

The average interchange rate for a rewards credit card sits around 2.0–2.4%. Add network fees and your processor’s margin, and a blended effective rate of 2.8–3.5% is common for small businesses. If your customers skew toward premium travel or cash-back cards, that number climbs higher still.

Here’s what those rates actually cost at different revenue levels:

The trend isn’t in your favor. As more customers shift to premium rewards cards and digital wallets, the average interchange rate for small businesses has been creeping upward. The fees that felt manageable five years ago are materially larger today.

Your Three Options for Addressing Card Fees

Option 1: Credit Card Surcharging

A surcharge is a separate, clearly disclosed fee added to a customer’s bill when they pay by credit card. It appears as its own line item on the receipt — something like “Credit card surcharge: $4.50” — and it’s designed to recover your actual processing cost, not profit from it.

The Core Card-Brand Rules

Both Visa and Mastercard publish merchant surcharge rules that all processors and merchants must follow. The requirements that matter most:

• Surcharges can only be applied to credit cards — never to debit cards, even when a debit card runs over the Visa or Mastercard network as a “credit” transaction (which happens when a customer doesn’t enter a PIN).
• The surcharge cannot exceed your actual cost of acceptance for that card brand. Visa caps surcharges at 3% as of its April 2023 rule update. Mastercard maintains its own cap — confirm the current limit with your processor, as card-brand rules update periodically.
• You must notify your acquiring bank and the card network in writing at least 30 days before you begin surcharging. Visa has a formal registration process; Mastercard has similar requirements. Your processor initiates the submission, but you need to ask them to do it — don’t assume it’s happening automatically.
• Surcharges must be disclosed at the point of entry (store entrance or first page of your website), at the point of sale (checkout counter or online checkout), and on the receipt.
• The surcharge must appear as a separate line item — not bundled into the item price.
• You must apply the surcharge consistently to all credit card transactions of the same card brand.

Where Surcharging Makes Sense

Surcharging tends to work best where additional fees are already normalized — B2B invoicing, professional services, trades, and contractors. It also works well when ticket sizes are large enough that the dollar amount of the fee is meaningful to you but the percentage still feels reasonable to the customer. A 3% surcharge on a $2,000 invoice is $60, which most business customers understand and accept. A 3% surcharge on a $6 coffee is $0.18, which feels irritating even if it’s mathematically smaller.

What to Watch Out For

The most common compliance failure is accidentally surcharging debit cards. This happens when a POS system isn’t properly configured to distinguish credit from debit at the card-read level, or when a customer’s debit card runs as a “credit” transaction. Your processor or POS system needs to handle this distinction programmatically — it cannot be managed manually at the register.

The second most common failure is inadequate disclosure. Vague signage like “fees may apply” doesn’t meet the standard. The disclosure needs to state the specific surcharge percentage before the customer commits to the transaction.

Option 2: Dual Pricing

With dual pricing, you display two prices: a standard card price and a lower cash price. Customers see both options before they decide how to pay. It’s been standard practice at gas stations for decades, and it’s increasingly common in other retail and service settings.

How It Differs From Surcharging — and Why That Matters

The distinction between dual pricing and surcharging is both technical and practical. With true dual pricing, the card price is your regular price, and you’re offering a discount for cash, rather than adding a surcharge to a base price. This matters because some states that restrict surcharging explicitly allow cash discounts, and card-brand rules treat them somewhat differently.

However — and this is the part that trips up many businesses — if your POS shows one price and then adds a “non-cash adjustment” at checkout, card networks may treat that as surcharging in practice, regardless of how you’ve labeled it. If your dual pricing effectively functions as a surcharge, the same registration, disclosure, and debit-card exclusion requirements apply.

What Compliant Dual Pricing Looks Like

• Shelf labels, menus, or price lists show both prices clearly: “Coffee: $4.50 cash / $4.64 card”
• The POS system automatically applies the lower price when the customer pays with cash or PIN debit
• Staff can explain the pricing to any customer who asks, without hesitation or confusion
• Online checkout shows the card price as the default, with a visible option for ACH payment at the lower price where applicable

Where Dual Pricing Makes Sense

Gas stations, auto repair shops, local restaurants, and retail businesses where prices are already displayed prominently. It works less naturally in service businesses that invoice after the fact, or in B2B contexts where contracts often specify payment terms.

Option 3: Service Fees — Government, Higher Education, and Utilities Only

Service fees are a separate fee structure that Visa and Mastercard permit for specific merchant category codes. If you’re running a city government accepting utility payments, a public university collecting tuition, or a similar entity, you may be eligible.

If you’re a small business — retail, restaurant, professional services, e-commerce, this option is not available to you. The MCC requirements are specific and non-negotiable. Attempting to structure a regular small business fee program as a “service fee” violates card-brand rules. Processors can and do terminate merchant accounts for this, and being terminated for compliance violations makes establishing a new merchant account significantly harder.

State-by-State Legality: What You Need to Know

Card-brand rules set the floor — state law can add additional requirements or, in some states, further restrict what’s permitted. The landscape has shifted considerably since the 2017 Supreme Court decision in Expressions Hair Design v. Schneiderman, which struck down certain state restrictions on surcharge disclosure. Here’s where things stand in early 2026:

IMPORTANT: State laws change. Connecticut and Massachusetts have historically been among the most restrictive states, but the legal picture continues to evolve. Before implementing any surcharging or dual pricing program, confirm current status with your attorney or a compliance-aware processor. This table reflects general understanding as of early 2026 and is not legal advice.

Other Restrictions to Check

Beyond state law, review your lease agreement (some commercial leases prohibit surcharging), franchise agreement (franchise systems sometimes set their own payment rules), and any professional licensing requirements specific to your industry. These aren’t hypothetical — a franchisee who implements surcharging without checking their franchise agreement can find themselves in breach of contract.

What Your Disclosures Actually Need to Say

Vague disclosures are one of the most common compliance failures, and they expose you to both card-brand enforcement and state consumer protection liability. Here’s what’s actually required, in practical terms:

For In-Store Surcharging

• Entrance signage — visible at the door, before a customer commits to a transaction. Example language: “We charge a [X]% surcharge on credit card transactions. This surcharge is not greater than our cost of acceptance. Cash, debit card, and ACH are accepted without a surcharge.”
• Point of sale disclosure — at the register or checkout counter, before the customer finalizes payment. The customer must be able to choose a different payment method after seeing the disclosure. A disclosure that only appears after the customer has committed to paying doesn’t meet the standard.
• Receipt notation — the surcharge must appear as a separate, clearly labeled line item. “Credit card surcharge: $X.XX” is appropriate. Burying the fee in the subtotal is not.

For Online Surcharging

• Surcharge disclosure on the first page where payment information is collected — not in the terms of service, not on a separate page linked in the footer.
• The customer must see the total charge, including the surcharge, before they confirm payment. A total that only appears post-authorization doesn’t meet the standard.
• The receipt or order confirmation must include the surcharge as a separate line item.

For Dual Pricing

All posted prices should show both the cash and card price. If displaying both prices in a given context isn’t practical (small shelf labels, for example), showing the card (higher) price as the default with clearly posted disclosure that a lower cash price is available is generally acceptable. The key is that no customer should be surprised by the price difference at checkout.

What Happens If You Get It Wrong

Non-compliance isn’t just a theoretical risk. The consequences are real and can compound quickly:

• Card network fines: Card network fines — Visa and Mastercard can issue fines to your acquiring processor for violations, which processors pass through to merchants. Repeated violations can result in account termination.
• Account termination: Account termination — being dropped for compliance violations is recorded in the MATCH (Member Alert to Control High-Risk) database, making it significantly harder to get a new merchant account.
• Chargebacks: Chargebacks — undisclosed or misconfigured fees generate disputes. Even if a customer technically agreed to pay, if the fee wasn’t clearly disclosed before the transaction, they can dispute it and often win.
• State regulatory exposure: State regulatory exposure — several states have consumer protection statutes that cover undisclosed fees. A pattern of complaints can attract state AG attention.

The compliance bar isn’t actually that high. Most of it comes down to clear signage, properly configured POS to exclude debit, and registering with Visa and Mastercard before you start. But it requires intentional setup — it cannot be an afterthought.

Should Small Businesses Mix Strategies?

You can run different strategies in different contexts — surcharging on invoices while using dual pricing in-store, for example — but for most small businesses, this creates more complexity than it solves.

The training requirement alone argues for simplicity. Every staff member needs to be able to explain the fee policy clearly and accurately to any customer who asks. If they can’t, you get inconsistent explanations, customer frustration, and the kind of negative reviews that outlast any processing savings.

A cleaner approach: pick one strategy per location, communicate it well, and give every customer a clear no-fee alternative. For in-person businesses, that usually means cash. For service businesses and B2B, ACH is increasingly the right answer — many processors offer ACH at a flat rate of $0.25 to $1.00 per transaction, making it dramatically cheaper than card processing on large invoices.

A Practical Action Plan

Step 1: Know Your Actual Processing Cost

Pull your last three months of processing statements and calculate:

Step 2: Decide If the Math Works for You

A 3% surcharge on $300,000 in annual card volume would recover $9,000 per year. If 10% of customers shift to cash or stop doing business with you as a result, that recovery drops — and you’ve also lost revenue on the transactions that left.

There’s no universal right answer. A contractor invoicing businesses for $10,000 to $50,000 projects can often add a 3% surcharge with very little friction. A coffee shop doing $6 transactions in a price-competitive neighborhood faces a fundamentally different calculus. Ask yourself:

• How price-sensitive are my customers relative to the size of the fee in dollars?
• Do my competitors already surcharge, use dual pricing, or absorb fees?
• Would a clearly explained fee feel fair to my typical customer, or would it feel like a gotcha?

Step 3: Choose One Approach and Implement It Cleanly

Option A: No Added Fees — Just Optimize

Move off tiered pricing to interchange-plus pricing if you haven’t already — this alone often reduces effective rates by 0.3–0.7% with no customer-facing changes. Ask your processor to review your markup, eliminate add-on fees you don’t need, and make ACH available for larger transactions and recurring payments. This approach carries zero customer friction and zero compliance risk.

Option B: Surcharging (Credit Cards Only)

• Ask your processor to register you with Visa and Mastercard — this must happen at least 30 days before you start
• Configure your terminal or POS to identify credit vs. debit at the card-read level and apply the fee only to credit
• Set your surcharge rate at or below your actual effective rate (typically around 3%)
• Install entrance signage, counter signage, and update your online checkout
• Train staff: the fee applies to credit cards only, not debit, and here are the no-fee alternatives

Option C: Dual Pricing

• Update menus, shelf labels, and posted prices to show both card and cash prices
• Configure your POS so cash and PIN debit payments automatically get the lower price
• Make sure language and implementation don’t function as an undisclosed surcharge
• Train staff on a clear, one-sentence explanation of the pricing

Step 4: Monitor the Results

Track your net effective rate monthly. Watch for changes in chargeback rates, customer complaint patterns, and transaction mix — are more customers shifting to cash? Are average transaction values changing? Give it 60 to 90 days before drawing conclusions, and be willing to adjust the rate or roll back entirely if the customer friction outweighs the savings.

Frequently Asked Questions

Can I add a fee to debit card transactions?

No. Under Visa and Mastercard rules, surcharges are limited to credit cards. This applies even when a debit card runs over the Visa or Mastercard network as a “credit” transaction because the customer didn’t enter a PIN. Your system must distinguish at the card-read level, not based on how the customer selects the transaction type.

Is dual pricing safer than surcharging from a compliance standpoint?

Not necessarily — different, and sometimes more intuitive for customers. A gas station-style “cash price / card price” display is familiar and rarely generates complaints. But if your dual pricing functions as a card surcharge in practice (low sticker price plus an add-on fee at checkout), card networks treat it as surcharging regardless of the label, and all the same registration and disclosure rules apply.

What about “no-cost processing” or “zero-fee” programs offered by processors?

These are almost always surcharging or dual pricing under a marketing-friendly name. Some are compliant; some are not. The key questions to ask any processor offering these programs: How does this comply with Visa and Mastercard surcharge rules? Does it exclude debit cards? How do you handle the 30-day registration requirement? If they can’t answer those questions clearly, be cautious — your merchant account is the one at risk, not theirs.

My state restricts surcharging. Can I use dual pricing instead?

Possibly, depending on the specific restriction. Some state laws restrict surcharging specifically but permit cash discounts, which is the structure dual pricing uses. This is exactly the kind of question that needs a current, state-specific answer from your attorney or a processor with compliance expertise in your state. Don’t rely on general guidance here.

What about American Express?

Amex has its own surcharge rules, separate from Visa and Mastercard. Historically Amex prohibited surcharging entirely; they’ve updated their policies over time. If you’re implementing surcharging and you accept Amex, confirm current Amex requirements through your processor — don’t assume Visa and Mastercard rules apply equally.

Can my small business use a service fee structure like a city or university does?

No. Service fee programs require specific merchant category codes — government, higher education, and utilities. Standard retail, restaurant, services, or e-commerce MCCs are not eligible. A processor who suggests otherwise is putting your account at risk, not theirs.

What’s the fastest win if I’m not ready to change my pricing strategy?

Ask your processor for a pricing review and a statement audit. Many small businesses are on tiered or bundled pricing plans that cost significantly more than interchange-plus pricing. Switching pricing models — without changing a single thing customer-facing — often reduces effective rates by 0.5–1.0%. That’s real money, zero compliance risk, and zero customer friction. Do this first before you decide whether surcharging or dual pricing is worth the additional complexity.

Disclosures & Legal Disclaimer

Educational Purposes Only: The information provided in this article is for general informational and educational purposes only and does not constitute legal, financial, or professional tax advice. While we strive to provide accurate and up-to-date analysis of 2026 payment regulations, laws regarding credit card surcharges and convenience fees are complex and subject to rapid change.

Jurisdictional Variability: Legality varies significantly by jurisdiction. While federal law generally permits surcharging on credit cards (capped at the merchant’s cost of acceptance or 4%), individual states—such as Connecticut, Massachusetts, and Maine—currently prohibit the practice, and others like New York and Colorado impose strict disclosure and capping requirements. This article should not be used as a definitive guide for your specific state or local regulations.

Card Network Compliance: In addition to state and federal law, merchants must comply with specific operating rules set by card brands like Visa and Mastercard. These rules typically require a 30-day advance notice to the networks, clear signage at the point of entry and sale, and a strict prohibition against surcharging debit or prepaid cards—even when processed as credit.

No Professional Relationship: Use of this website or reliance on any information contained herein does not create an attorney-client or professional-consultant relationship between you and IntelliPay.

Consult a Professional: Because the legal landscape for “Junk Fees” and surcharging is evolving rapidly in 2026 due to new FTC disclosure mandates, we strongly recommend consulting with a qualified attorney or compliance expert before implementing any fee-recovery program in your business.