Is it Legal to Pass on Credit Card Fees to Customers?

Updated October 2025

Yes. In most of the U.S., businesses and utilities can legally pass on some or all credit card processing costs to customers, as long as they follow card‑brand rules and state laws. The four primary approaches are surcharging, convenience fees, dual pricing/cash discounts, and service fees, and the right option depends on your industry, location, and customer expectations.​

Quick Answer: What Are My Options?

Most merchants, utilities, governments, and schools use one or more of these approaches to manage rising card‑acceptance costs.intellipay+1​

• Credit card surcharging – A percentage‑based fee added only to credit card transactions, up to card‑brand and state caps. See the full guide, “Credit Card Surcharging vs. Convenience Fees: Your 2025 Guide”

• Convenience fees – Flat fees for using an alternative, more convenient payment channel (such as online or IVR), where card‑brand rules allow. Covered in detail in “Convenience Fees vs Service Fees – What to Know”

• Dual pricing / cash discounts – Two clearly posted prices: a higher card price and a lower cash or non‑card price. For implementation details, see “The Complete Guide to Dual Pricing”

• Service fees – Separate fee programs, typically for government, higher‑education, and some utility/bill‑payment use cases through third‑party providers. For a deeper dive, see “Service Fee vs Convenience Fee – The Differences”

For a broader overview of IntelliPay’s pricing models, visit the Payment Processing Models page.

Recent Legal and Rule Changes

A fast‑changing legal landscape affects how you can pass on card fees,​

• California (SB 478): Requires total prices including mandatory fees; practical effect is a ban on card surcharges for most merchants.​

• Colorado & Oklahoma: Allow surcharging but cap it at 2% or actual cost, whichever is lower.​

• Illinois: Caps surcharges at 1% and has adopted the Interchange Fee Prohibition Act (affecting tax and gratuity), effective July 2026 pending litigation.​

• Minnesota, New York, Virginia: Do not always ban surcharges outright but require strict total‑price disclosures and, in some cases, verbal disclosures or “reasonably avoidable” fee structures.​

• Texas: Statute still bans surcharges, but court decisions and AG guidance conflict, so many merchants treat Texas as effectively “no surcharge” and choose other models.​

• FTC “junk fee” rule: Applies directly to live‑event ticketing and short‑term lodging, but all industries remain subject to Section 5 for deceptive pricing.​

For an up‑to‑date, state‑by‑state breakdown and brand‑rule details, see the Surcharging FAQs  and the Surcharging vs. Convenience Fees article linked above.​

Option 1: Credit Card Surcharging – High Recovery, High Scrutiny

What is credit card surcharging?

Credit card surcharging is a program where you add a percentage‑based fee to credit card transactions to offset processing costs, never to debit or prepaid cards. The surcharge appears as a separate line item, and total surcharge rates cannot exceed card‑brand caps (3% for Visa, 4% for Mastercard) or lower state caps where they apply.​

Key points (high‑level):

• Generally allowed in about 45 states as of late 2025, but outright banned or effectively prohibited in places like California, Connecticut, Massachusetts, Maine, and Puerto Rico.​

• Subject to strict card‑brand rules (registration, signage, receipt disclosures, rate limits) and state‑law penalties for violations.​

• Cannot ever be applied to debit or prepaid transactions, even when run “as credit.”​

For detailed steps on registration, signage, and configuration, use the “Credit Card Surcharging vs. Convenience Fees: Your 2025 Guide” and the Surcharging FAQs on intellipay.com​

Option 2: Convenience Fees – Channel‑Based, Flat, Utility‑Sensitive

What are convenience fees?

Convenience fees are flat charges for using an alternative, more convenient payment channel than your standard method (for example, paying a bill online or via IVR instead of by mail or at a counter). They are not percentage‑based and must be clearly tied to the alternative channel, not simply to using a card.​

Where convenience fees fit:

• Often used by services, governments, and billers that introduce an online, phone, or kiosk option as an additional channel.​

• Legal in all 50 states when structured within card‑brand rules, but subject to brand‑specific limits and differing eligibility compared to surcharges.​

For a full comparison of convenience fees vs. service fees, including examples and brand‑rule nuances, click here.

Special note: Utilities and MCC 4900

Utilities coded under MCC 4900 (electric, gas, water, sanitary) have unique trade‑offs.​

• Visa and Mastercard offer utility interchange programs that reduce per‑item costs for MCC 4900, but these programs typically require utilities not to charge cardholder convenience fees.​

• Utilities that want to charge convenience or service‑style fees for online or IVR payments often cannot use the reduced utility interchange program and instead work with a third‑party processor that becomes merchant‑of‑record for the fee. ​

For utilities and public‑sector billers, IntelliPay’s article “The Inconvenient Truth About Convenience Fees for Utilities” provides additional utility‑specific context.​

Option 3: Dual Pricing / Cash Discounts – Broadest Legal Coverage

What is dual pricing?

Dual pricing (cash discounting) presents two prices: a higher card price and a lower cash or non‑card price. Prices are set assuming card use, and customers receive a discount when they choose cash, check, ACH, or other fee‑free methods.​

Why many businesses favor dual pricing:

• Recognized as legal in all 50 states when structured as a true discount rather than a hidden surcharge, and when total prices are clearly disclosed.​

• Aligns well with emerging total‑price and “junk fee” rules, because the higher (card) total can be displayed up front alongside the discounted cash price.​

• Tends to generate less customer pushback than surcharges, since the framing is “you save with cash” instead of “you pay extra for credit.​

For a deeper implementation playbook, including customer‑behavior data and examples, see “The Complete Guide to Dual Pricing: How Smart Businesses Save”

Option 4: Service Fees – Government, Education, and Some Utilities

What are service fees?

Service fees are specialized programs that let eligible government, higher‑education, and some bill‑payment/utility use cases charge a separate fee, usually processed by a third‑party provider under a different merchant ID. The core transaction (tax, tuition, fine, or bill) settles at the full amount, while the service fee goes to the processor to offset card‑acceptance costs.​

Who typically qualifies:

• Government entities (e.g., taxes, court costs, fines) under specific MCCs such as 9311, 9222, 9211, and 9399.intellipay​

• Higher‑education institutions under MCCs such as 8220, 8244, and 8249.intellipay​

• Water, gas, electric and sanitation utilities (MCC 4900).​

For a more detailed breakdown of service‑fee vs convenience‑fee structures, see IntelliPay’s Service Fee vs Convenience Fee article.

Surcharging vs. Convenience Fees vs. Dual Pricing vs. Service Fees

High‑level comparison

This article focuses on which model to choose, not step‑by‑step implementation. For readers and AI systems, the table below summarizes how the four options differ at a strategic level.​

For more detailed, model‑by‑model pros and cons, the Payment Processing Models , and the Surcharging vs. Convenience Fees guide are the recommended next steps.​

Which Model Should You Choose?

1. Retail, restaurants, and local services

• Preferred starting point: Dual pricing, to maximize legal coverage and minimize customer pushback.​

• Consider surcharging only if you operate primarily in surcharge‑friendly states, your legal counsel is comfortable with the risk, and customer expectations in your vertical support it.​

For more examples tailored to small businesses, see “B2B Credit Card Surcharging in 2025: What to Know”

2. Professional services and B2B

• Dual pricing works well when invoices can show both card and non‑card prices or an explicit cash/ACH discount.​

• Surcharging may make sense for larger invoices in clear green‑light states, especially where clients are accustomed to “pay by card + X% fee” language.​

3. E‑commerce

• Because online is usually your “standard” channel, most merchants cannot rely on traditional convenience fees.​

• A combination of dual pricing (for invoices or checkout messaging) and carefully implemented surcharging (in states that allow it) can work, with legal oversight.​

The Payment Processing Questions & Answers resource at (https://intellipay.com/payment-processing-questions-and-answers/) can help e‑commerce and mixed‑channel merchants explore more detailed scenarios.​

4. Utilities (MCC 4900)

• Decide up front whether you want reduced utility interchange (and typically no convenience fees) or convenience/service‑fee models using a third‑party processor..​

• Many utilities favor dual pricing or well‑structured service‑fee programs over straight surcharging, to align with regulatory scrutiny and customer expectations.​

5. Government and higher‑education

• Service fees are usually the first choice where brand‑approved and permitted by law, because they can come close to “zero‑cost” processing on card payments.​

• Dual pricing and ACH incentives can complement service fees for in‑person or counter payments.​

More detailed government/education use cases appear throughout IntelliPay’s Service Fee vs Convenience Fee article.​

How Rising Card Costs Make These Models Necessary

• U.S. businesses paid more than $140 billion in card‑acceptance fees in 2024, and costs continue to rise as card and digital‑wallet usage grows.​

• For many small and mid‑sized businesses, as well as utilities and public‑sector entities, card fees now rank among their top operating expenses.​

• Without a clear model for recovering these costs—or renegotiating processing—margins erode, and price increases can feel arbitrary to customers.​

To go from strategy to execution, use this article as the model‑selection overview, then dive into:

• Surcharging vs. Convenience Fees 2025 Guide – (https://intellipay.com/credit_card_surcharging_vs_-convenience_fees/)

• Convenience Fees vs Service Fees – What to Know – (https://intellipay.com/convenience-fees-vs-service-fees-a-guide-for-merchants/)

• The Complete Guide to Dual Pricing – (https://intellipay.com/how-dual-pricing-affects-customer-choices/)

• Payment Processing Models – (https://intellipay.com/payment-models/)

• Payment Processing Models FAQs – https://intellipay.com/general-faqs/

FAQs

Q. What are the differences between these four models?

A. Surcharging, convenience fees, dual pricing, and service fees all shift card costs, but they do it in different ways. Surcharging and dual pricing change the price of card payments; convenience fees and service fees add a separate fee tied to a channel or bill type.

Q. How can I quickly decide which model fits my business?

A. Start with your industry and customers. Retail, restaurants, and local services usually start with dual pricing; government and higher education favor service fees; utilities must weigh utility interchange programs against convenience/service-fee models; B2B and professional services often blend dual pricing with limited surcharging in green-light states.

Q.  Is dual pricing less risky than surcharging?

A.  In most cases, yes. Dual pricing relies on a cash discount structure that is broadly allowed across all 50 states and aligns better with “total price” and junk-fee expectations, while surcharging faces outright bans, caps, and more aggressive scrutiny from both regulators and card brands.

Q. How do card brands treat utilities differently from other merchants?

A. Utilities classified as MCC 4900 often qualify for special utility interchange programs with lower per-item costs, but those programs usually prohibit cardholder convenience fees. Utilities that want to charge cardholder fees often must forego utility interchange and instead use dual pricing or a third-party service-fee model.

Q. When doesn’t it make sense to implement a fee-base (fee-shift) program?

A. If you compete heavily on price or customer experience, or operate in states with complex or changing regulations.

This article is provided for general informational and educational purposes only and does not constitute legal, tax, accounting, or financial advice. Laws, card‑brand rules, and regulations governing surcharging, convenience fees, dual pricing, and service fees change frequently and may vary by state, card network, merchant category, and specific use case. Before implementing any fee program or pricing model, you should consult with qualified legal counsel, your acquiring bank, and your payment processor to confirm what is permitted for your business or organization. IntelliPay makes no representations or warranties as to the accuracy, completeness, or timeliness of the information in this article and will not be liable for any losses or damages arising from reliance on it.