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

Updated October 2025

Quick Answer: Yes, it’s legal to pass credit card processing costs to consumers. Small businesses have four main options: surcharging (legal in 45 states as of October 2025), convenience fees (legal nationwide), dual pricing/cash discounts (legal everywhere), and service fees (government/education only). Each has specific card network rules and state requirements.

Recent Changes Timeline

Recent Changes (2024-2026)

• California (July 2024): Surcharging prohibited
• Kansas (January 2025): Surcharging legalized
• Minnesota (January 2025): Verbal disclosure required
• Virginia (July 2025): Enhanced total-price disclosure required
• Oklahoma (November 2025): Surcharging legalized, 2% cap
• Illinois (July 2026): Interchange fee prohibition pending litigation
• North Carolina (Pending): 2% cap under consideration

Your 4 Cost Reduction Options

Credit card processing fees run 1.5% to 3.5% per transaction for small businesses, which can make them the second-largest expense after payroll. The good news? You have four ways to reduce these costs. Let’s delve into each option:

1. Credit Card Surcharging

What it is: Add a fee to credit card transactions to offset processing costs Legal status: Legal status: 45 states allow it as of October 2025. Surcharging is prohibited in California, Connecticut, Massachusetts, Maine, and Puerto Rico. Oklahoma joined the list of states formally allowing surcharging effective November 1, 2025, Cost recovery: Up to 4% (3% for Visa) or actual processing cost, whichever is lower

2. Convenience Fees

What it is: Charge flat fees for alternative payment channels (online, phone) Legal status: Legal in all 50 states Cost recovery: Flat fee only, not percentage-based

3. Dual Pricing/Cash Discounts

What it is: Display two prices – higher for cards, lower for cash Legal status: Legal in all 50 states Cost recovery: Most merchants report effective recovery of the majority of credit card processing fees, though the exact percentage (70-90%) varies based on customer habits, average ticket size, and processor pricing.

4. Service Fees

What it is: Visa-approved program allowing eligible government and higher education merchants—within specific MCCs—to charge a separate fee to recover processing costs. Legal status: Only available to qualifying MCC codes; merchants outside these MCCs cannot use this program. Cost recovery: Variable or flat fees processed as separate transactions

Option 1: Credit Card Surcharging – Highest Recovery, Most Restrictions

What Is Credit Card Surcharging?

Credit card surcharging allows merchants to add a percentage-based fee to transactions when customers pay with credit cards. This fee directly offsets the interchange and processing costs you pay to accept cards. The surcharge fee is typically added at the end of the transaction.

2025 Example: A $100 purchase with a 3% surcharge becomes $103 for the customer, allowing you to recover your processing costs.

Card Network Requirements for Surcharging

Visa Surcharge Rules (3% Maximum as of 2025)

• Registration: 30-day advance notice required before implementation
• Disclosure: Clear signage at entry points and point of sale
• Receipts: Surcharge amount must appear as a separate line item
• Limitation: Cannot exceed 3% or actual processing cost
• Prohibited cards: No surcharges on debit or prepaid cards

Mastercard Surcharge Rules (4% Maximum)

• Registration: 30-day advance notice to Mastercard and acquirer required
• Brand vs Product Level: Choose to surcharge all Mastercard credit cards at the same rate, or different rates by card type
• Cost Limitation: Cannot exceed merchant’s average effective rate or actual processing cost
• Disclosure: Point-of-interaction disclosure and receipt itemization required

American Express Surcharge Rules

• OptBlue Program: For merchants under $1M annual Amex volume, follow processor guidelines
• Direct Agreement: Merchants over $1M must have direct Amex contract
• Consistency: Must treat Amex same as other card brands if surcharging others
• Rates: Cannot exceed actual cost of acceptance

Discover Surcharge Rules

• Uniform Treatment: Must charge same surcharge rate as applied to Visa/Mastercard
• Cost Limitation: Cannot exceed actual processing costs
• Disclosure: Same requirements as other networks

State Laws for Credit Card Surcharging

States Where Surcharging is Prohibited:

• Maine: Prohibited except for government entities
• Massachusetts: Complete ban on credit card surcharges
• Puerto Rico: Territory-wide prohibition

Note: Oklahoma previously prohibited surcharging, but as of November 1, 2025, surcharging became legal with a 2% cap or actual processing cost (whichever is lower) and mandatory disclosure requirements.

States with Surcharge Restrictions:

• California: Illegal as of July 1, 2024 under SB 478 ($1,000 fine per violation)
• Colorado: Maximum 2% surcharge allowed
• Illinois: Capped at 1% or actual processing fee, whichever is lower

• Illinois: Interchange Fee Prohibition Act (Effective July 2026):Illinois passed legislation prohibiting interchange fees on tax and gratuity portions of transactions. The law takes effect July 1, 2026, pending federal court challenges. This could reduce merchant processing costs by 20%+ on transactions with tax and tips.

• Minnesota: Minnesota: As of January 1, 2025, House File 3438 requires all mandatory fees to be included in advertised prices. Surcharging remains legal only if the fee is “reasonably avoidable” by the consumer (e.g., by paying cash, check, or debit). If a business accepts only credit cards, surcharges cannot be added separately. Maximum surcharge is 5% under state law, but federal limits of 4% (3% for Visa) apply. Penalties of up to $500 per violation.Minnesota requires verbal disclosure for face-to-face transactions effective January 1, 2025. Staff must inform customers about surcharges before completing sales. Violations carry $500 penalties

• New York: Cannot exceed actual processing costs ($500 fine per violation)
• North Carolina: House Bill 13, updated September 2025, proposes a 2% surcharge cap with comprehensive disclosure requirements. The bill is under committee review as of October 2025. If enacted, violations carry $500 penalties per offense.
• Kansas: Legal as of January 1, 2025 with proper notice requirements
• Oklahoma: Oklahoma Senate Bill 677 legalizes surcharging effective November 1, 2025. The maximum surcharge is 2% or actual processing cost, whichever is lower. Merchants must clearly disclose surcharges at entry points, points of sale, and on receipts.
• Texas: State law prohibits surcharging under Texas Business and Commerce Code § 604A.0021, but federal courts ruled this unconstitutional in 2018. However, the Texas Attorney General issued an opinion in 2019 stating the law remains enforceable. Merchants can legally use convenience fees, service fees, and cash discounts. Legal status remains uncertain; consult a Texas attorney before implementing surcharges
• Virginia: Surcharging is legal, but as of July 1, 2025, Senate Bill 1212 requires sellers to “clearly and conspicuously” display the total price including all mandatory fees and surcharges in advertised prices. Non-compliance can result in civil penalties of up to $2,500 per violation ($5,000 for subsequent violations). Exemptions apply to motor vehicle dealer fees, utilities, real estate settlement costs, and air transportation. Virginia requires surcharge fees to be clearly disclosed in total prices. Surcharges cannot be hidden until checkout.

Pros and Cons of Credit Card Surcharging

✅ Advantages:

• Directly recover 100% of processing costs on credit card transactions
• Encourage customers to use lower-cost payment methods (cash, debit)
• Maintain the current pricing structure for non-card payments
• Immediate cost savings on high-volume credit card transactions

❌ Disadvantages:

• Customer satisfaction drops 39 points on average when surcharges are encountered
• 81% of customers actively avoid surcharges by using alternative payment methods
• Complex compliance requirements across multiple jurisdictions
• Risk of fines ranging from $500 to $1 million for non-compliance
• Prohibited in key markets (California, New York restrictions)

Option 2: Convenience Fees – Simple, Universal, Limited Application

What Are Convenience Fees?

Convenience fees are flat charges for using alternative payment channels that aren’t standard for your business. Unlike surcharges, these must be fixed amounts, not percentages.

Example: A utility company that normally accepts mail-in checks charges a $3.95 convenience fee for online credit card payments.

Card Network Requirements for Convenience Fees

Visa Convenience Fee Rules

• Alternative Channel Requirement: Must be for a non-standard payment method (online when you normally accept in-person)
• Flat Fee Structure: Must be a fixed amount, not a percentage of the transaction
• Clear Disclosure: Customer must be informed before transaction completion
• No Recurring: Cannot be charged for subscription or recurring payments
• Cancellation Option: Customer must be able to cancel the transaction to avoid the fee

Mastercard Convenience Fee Rules

• Limited Eligibility: Only pre-certified government agencies and educational institutions
• Equal Treatment: If charging convenience fees on other cards, must charge same on Mastercard
• Alternative Payment: Must offer other payment methods without a fee
• Electronic Data Security: Additional security standards may apply

American Express Convenience Fee Rules

• Convenience Definition: Must represent actual convenience in payment method
• Administrative Costs: Fee must be characterized as covering administrative costs, not card acceptance costs
• Clear Disclosure: Must be disclosed with the option for the customer to cancel
• No Discrimination: Cannot treat Amex differently from other cards

Discover Convenience Fee Rules

• Uniform Treatment: Must treat Discover the same as Visa, Mastercard, and American Express
• Cost Limitation: Cannot exceed the cost of acceptance

Pros and Cons of Convenience Fees

✅ Advantages:

• Legal in all 50 states without geographic restrictions
• Simpler compliance than surcharging programs
• Can apply to both credit and debit cards (depending on the situation)
• Customers understand they’re paying for convenience/service

❌ Disadvantages:

• Limited to alternative payment channels only
• Must be a flat fee, cannot scale with transaction size
• Restricted mainly to government and education for Mastercard
• Cannot be used if cards are accepted in the standard payment flow

Option 3: Dual Pricing/Cash Discount Programs – Maximum Flexibility, Universal Legality

What Is Dual Pricing?

Dual pricing displays two different prices: one for cash payments and a higher price for credit card payments. Customers see cash as receiving a discount rather than credit cards being penalized.

Example: Menu shows “$21.00 Cash Price / $21.65 Card Price” with payment terminal automatically calculating discount for cash customers.

How Dual Pricing Works

1. Price Structure: Raise all listed prices to cover credit card processing costs (typically 3-4%)
2. Two-Price Display: Show both cash and credit card prices clearly
3. Automatic Calculation: POS system calculates appropriate total based on payment method
4. Customer Choice: Customers choose payment method understanding the price difference

Card Network Rules for Dual Pricing

Universal Requirements:

• Clear Display: Both prices must be visible to customers before purchase
• No Deception: Cannot mislead customers about pricing structure
• Consistent Application: Must apply pricing structure uniformly
• Receipt Clarity: Payment method and any discounts must be clear on receipts

State Laws for Dual Pricing

Legal Status: Dual pricing is legal in all 50 states because it’s structured as offering cash discounts rather than adding credit card surcharges.

Key Legal Advantage: The Durbin Amendment specifically protects merchants’ ability to offer discounts for cash or check payments, making this approach federally protected.

Pros and Cons of Dual Pricing

✅ Advantages:

• Legal in all 50 states with minimal compliance requirements
• Customers perceive cash as receiving discount rather than being penalized for card use
• Can recover full processing costs while maintaining customer satisfaction
• No registration requirements with card networks
• Works for both credit and debit card transactions
• Simpler to implement and maintain than surcharging

❌ Disadvantages:

• Requires updating all pricing displays, menus, and marketing materials
• May make prices appear higher than competitors initially
• Requires POS system capable of dual pricing functionality
• Need employee training on explaining program to customers

Option 4: Service Fees – Government and Higher Education Only

What Are Service Fees?

Service fees are special fees available only to qualifying government agencies and higher education institutions. These fees are processed as separate transactions, with proceeds going to third-party processors to cover processing costs.

Eligible Merchants for Service Fees

Government Entities (Qualifying MCCs):

• MCC 9311: Tax payments
• MCC 9222: Fines and penalties
• MCC 9211: Court costs and fees
• MCC 9399: Miscellaneous government services

Higher Education Institutions (Qualifying MCCs):

• MCC 8220: College tuition payments
• MCC 8244: Business and secretarial schools
• MCC 8249: Trade and vocational schools

How Service Fees Work

1. Dual Transaction Structure: Main payment processes normally, service fee processes as separate transaction
2. Third-Party Processing: Service fee goes to processor to cover interchange and assessment costs
3. Zero-Cost Result: Qualifying merchants receive full payment amount without processing deductions
4. Registration Required: Must register with Visa to participate in program

Card Network Rules for Service Fees

Visa Government and Higher Education Program:

• Registration: 30-day advance registration with Visa required
• Disclosure: Clear disclosure to cardholders in advance
• Separate Transaction: Service fee must be processed as distinct transaction
• Variable or Flat: Can be percentage-based or flat fee amount
• MID Requirements: May require separate merchant identification numbers

Pros and Cons of Service Fees

✅ Advantages:

• True zero-cost processing for qualifying merchants
• Can be variable percentage or flat fee
• Available for both card-present and card-not-present transactions
• Strong regulatory support for government and education sectors

❌ Disadvantages:

• Extremely limited eligibility (government and education only)
• Complex setup requiring separate transaction processing
• Registration and compliance requirements with Visa
• May require additional merchant accounts/MIDs

Choosing the Right Option for Your Business

For Retail Businesses:

Recommended: Dual pricing recommended for universal legality. Oklahoma merchants can use regulated surcharging (up to 2%) starting November 1, 2025.

For Service Businesses:

Recommended: Dual pricing for simplicity and broad applicability Consider: Convenience fees if you offer online payment for normally in-person services

For E-commerce Businesses:

Recommended: Dual pricing to avoid geographic restrictions Avoid: Convenience fees (not applicable for standard online transactions)

For Government/Education:

Recommended: Service fees for true zero-cost processing Backup: Dual pricing if service fee program unavailable

For High-Volume Businesses:

Primary: Negotiate better processing rates first Secondary: Implement dual pricing for predictable cost recovery

Implementation Best Practices

Before Choosing Any Option:

1. Legal Consultation: Review state and local laws with qualified attorney
2. Customer Research: Survey your customer base about payment preferences
3. Competitive Analysis: Understand how competitors handle processing costs
4. Cost-Benefit Analysis: Calculate potential savings vs. implementation costs

Implementation Checklist:

• Verify legal compliance in your jurisdiction
• Register with payment processing (surcharging/service fees)
• Update POS systems and payment terminals
• Create customer notification signage
• Train staff on new procedures and customer questions
• Monitor customer feedback and transaction patterns
• Review program effectiveness quarterly

Compliance Monitoring:

• Monthly: Review processing statements for fee accuracy
• Quarterly: Check for state law changes and card network updates
• Annually: Evaluate program effectiveness and customer satisfaction

Current Market Context: Why This Matters Now

2025 Processing Cost Reality:

• Credit card companies earned record $148.5 billion from processing fees in 2024
• Average family paid close to $1,200 in swipe fees in 2024
• Processing fees now rank in top 5 operating expenses for most businesses

New Federal Regulations:

• FTC’s Rule on Unfair and Deceptive Fees took effect May 12, 2025
• Applies ONLY to live-event ticketing and short-term lodging industries (hotels, vacation rentals)
• Does NOT directly regulate credit card surcharges for retail, restaurants, or most other businesses
• Requires total price (including all mandatory fees) to be displayed more prominently than other pricing
• Civil penalties up to $53,088 per violation (adjusted annually for inflation)
• Other industries remain subject to Section 5 FTC Act enforcement for deceptive pricing practices

State-Level Changes:

Illinois’s Interchange Fee Prohibition Act takes effect July 2026 (pending litigation). Oklahoma legalized surcharging effective November 1, 2025, with a 2% cap. North Carolina is considering 2% cap legislation.

Consumer Behavior Trends:

• Online transactions now make up 69% of all credit card purchases
• 88% of consumers still use cash, making dual pricing viable
• Customer satisfaction drops 39 points when encountering surcharges

Frequently Asked Questions

Which option saves the most money?

Service fees provide 100% cost recovery for qualifying government and education merchants. For other businesses, dual pricing typically provides the best combination of cost recovery and customer acceptance.

Can I use multiple options simultaneously?

Generally no. Card network rules typically prohibit combining surcharges with convenience fees or service fees. Dual pricing can sometimes be combined with convenience fees for alternative channels.

What’s the difference between a surcharge and a convenience fee?

Surcharges are percentage-based fees added to credit card transactions to offset processing costs. Convenience fees are flat-rate charges for using alternative payment channels and must be for genuine convenience (like paying online instead of in-person).

Is dual pricing the same as cash discounting?

Yes, dual pricing and cash discount programs are the same concept with different presentation methods. Both involve higher listed prices with discounts for non-card payments.

How do I know if my business qualifies for service fees?

Service fees are only available to government agencies (tax, fines, court costs) and higher education institutions (tuition payments). Check your merchant category code (MCC) to determine eligibility.

What happens if I violate card network rules?

Penalties range from $500 (state violations) to $1 million (major card network violations). You could also lose the ability to accept cards from that network.

Can I surcharge debit cards?

No. Federal law (Durbin Amendment) prohibits surcharging on debit cards, even when processed as credit transactions. This applies to all fee recovery methods.

How do customers typically react to these programs?

81% of customers who encounter surcharges actively use alternative payment methods to avoid them. Dual pricing generally receives better customer acceptance because cash payments are seen as receiving a discount.

What states have the strictest rules?

California has the most restrictive laws (surcharging illegal as of 2024), followed by Connecticut and Massachusetts (complete surcharge bans). New York and Minnesota have significant disclosure requirements.

Should I negotiate with my processor instead?

Always try negotiating better rates first. Some merchants save up to 40% by switching to transparent processors. Fee recovery programs work best in combination with competitive processing rates.

How often do these rules change?

Card network rules update twice yearly (April and October). State laws change frequently – 2024-2025 saw major changes in California, Kansas, Minnesota, and Virginia. Review compliance quarterly.

What’s the best option for small businesses?

For most small businesses, dual pricing offers the best combination of legal simplicity, universal applicability, and customer acceptance. It’s legal everywhere and doesn’t require complex compliance monitoring.

What happened with the FTC’s junk fee rule?

The FTC’s Rule on Unfair or Deceptive Fees took effect May 12, 2025, but it applies ONLY to live-event tickets and short-term lodging (hotels, vacation rentals). It does not directly regulate credit card surcharges for most businesses. However, the FTC can still pursue enforcement under Section 5 of the FTC Act against deceptive pricing practices in any industry. The rule requires covered businesses to display total prices (including mandatory fees) more prominently than other pricing information.

What happened with Oklahoma’s surcharge law?

Oklahoma legalized surcharging effective November 1, 2025. Maximum surcharge is 2% or actual processing cost. Clear disclosure required at all transaction points.

What is Illinois’s Interchange Fee Prohibition Act?

Illinois prohibits interchange fees on tax and gratuity portions of transactions starting July 2026. This could reduce merchant costs by 20%+ but faces federal court challenges.

Which states are most likely to change laws in 2025-2026?

Oklahoma already changed (effective November 1, 2025). North Carolina has pending legislation for 2% cap. Illinois’s interchange law takes effect July 2026 if legal challenges resolve.

The Bottom Line: Choose Wisely, Implement Carefully

Each option serves different business needs:

• Surcharging: Maximum cost recovery but complex compliance and customer resistance
• Convenience Fees: Simple and universal but limited application
• Dual Pricing: Best overall balance of cost recovery, legality, and customer acceptance
• Service Fees: Perfect for qualifying government/education, unavailable to others

Success factors for any program:

1. Legal compliance verification
2. Transparent customer communication
3. Staff training and support
4. Regular monitoring and adjustment
5. Customer feedback integration

The goal isn’t just to reduce processing costs—it’s to do so while maintaining customer relationships and staying compliant with an increasingly complex regulatory environment.

Choose the option that best fits your business model, customer base, and risk tolerance. When implemented properly with legal guidance and customer consideration, these programs can significantly improve your bottom line while maintaining positive customer relationships.

About IntelliPay

We help merchants optimize their payment processing through transparent interchange plus pricing, no junk fees, expert guidance, and reliable technology solutions. Our team combines deep industry knowledge with personalized service to ensure every client gets the best possible payment processing solution for their business.

Last updated: October 2025. Processing fee regulations change frequently. Always consult qualified legal and payment processing professionals before implementing any fee recovery program. This information is for educational purposes only and does not constitute legal, financial, or professional advice.

Sources: Information compiled from card network official documentation, state attorney general offices, Federal Trade Commission guidelines, and industry research from J.D. Power, Motley Fool Money, and payment processing industry reports.

Disclaimer

This guide provides general information about credit card fee recovery options as of October 2025. It is for educational purposes only and does not constitute legal, financial, or professional advice.

Credit card processing regulations vary by state and change frequently. Card network rules (Visa, Mastercard, American Express, Discover) are also subject to updates. Before implementing any fee recovery program, consult with:

• A licensed attorney in your state to review applicable laws
• Your payment processor for technical compliance requirements
• Your accountant for tax and financial reporting guidance

We make no representations about the accuracy or completeness of this information and assume no liability for actions taken based on this content. You are solely responsible for ensuring compliance with all applicable laws, regulations, and merchant agreements.