Introduction

In the world of used car sales, card transaction fees can be a constant concern for dealership management. Major card networks (Visa, Mastercard, etc.) charge non-negotiable processing fees for every card transaction. Did you know that your margins are contributing to someone else’s rewards, like vacation discounts or cash-back incentives?

The Cost of Credit Card Processing for Auto Dealers

According to 2025 payment industry data:
– Average credit card processing fees range from 2.5% to 3.5% for auto dealers
– American businesses paid over $160 billion in credit card processing fees in 2024
– The average used car dealer processes $500,000+ monthly in credit card transactions
– At typical rates, this represents $15,000-$17,500 in annual processing costs per dealership
– Compliant surcharging can help dealers recover 80-100% of these costs

Industry Adoption: A 2024 J.D. Power study found that an increasing percentage of merchants across industries are implementing surcharge programs to offset rising payment processing costs.

Why Surcharging is Your Solution

With continual fee increases impacting dealers, particularly smaller businesses, surcharging has become an appealing alternative. Surcharging, or adding a fee up to 3% of a customer’s due amount, helps to offset those pesky processing fees. It’s not unethical or uncommon; industries related to auto services are already using this approach.

Benefits of Surcharging for Used Car Dealers:

• Flexibility: Accept credit card payments for larger amounts without worrying about exorbitant processing fees.
• Improved Cash Flow: Lower overall costs boost profitability and fuel growth.

What is a Surcharge Fee?

A percentage can be added up to the lower of: (1) your actual merchant discount rate (MDR) for credit card processing, or (2) 3% maximum (Visa’s cap). The surcharge must cover actual costs only—merchants cannot profit from surcharging. Mastercard’s cap remains at 4%, but if you accept multiple card brands, you must apply the same surcharge rate to all brands, effectively limiting you to Visa’s 3% maximum.

Understanding Surcharge Fees

A surcharge fee is an extra amount added at payment time. For credit card transactions, up to 3% can be added, though debit or prepaid cards are exempt. Surcharge fees are handled by your POS system or payment processing platform.

Surcharge Fees vs. Other Fees

Don’t confuse surcharging with cash discounting or convenience fees. While surcharging adds a percentage for credit card use, cash discounting offers a price reduction for non-credit payments. Convenience fees are different from surcharges. Convenience fees must be a flat dollar amount (not a percentage), can only be applied to card-not-present transactions (online or phone payments), and provide a convenience that wouldn’t otherwise be available. Mastercard restricts convenience fees primarily to government agencies, educational institutions, and utilities. Convenience fees can sometimes be applied to debit cards in certain circumstances, unlike a surcharge.

What Card Networks Say About Surcharging

Card brands like Visa, Mastercard, Discover, and American Express permit surcharging, with some rules in place.”As of April 15, 2023, Visa reduced its maximum surcharge cap from 4% to 3%. While Mastercard maintains a 4% cap, merchants who accept both card brands must use the lower 3% limit for all credit card transactions—you cannot charge different surcharge rates for different card brands. Additionally, the surcharge cannot exceed your actual merchant discount rate (MDR), whichever is lower.

State and Local Regulations

As of 2025, Connecticut, Maine, Massachusetts, and California prohibit surcharging altogether. Connecticut law specifically bans credit card surcharges but allows cash discount programs with proper disclosure requirements. Texas has a prohibition on the books, though it is currently subject to legal challenges. Colorado allows surcharging but caps it at 2% (lower than the Visa limit). Several other states, including New York, New Jersey, Nevada, and South Dakota, require that surcharges not exceed the merchant’s actual cost of acceptance. Before jumping into surcharging, make sure you’re aware of your local laws.

Is Surcharging Right for Your Used Car Dealership?

Evaluate Payment Processing Costs Start by assessing your current expenses to determine if surcharging could be beneficial. IntelliPay can assist in calculating your net effective rate and potential surcharge amount.

Competitor Analysis Knowing how your competitors operate can also influence your decision to surcharge.

Before implementing surcharging, used car dealers must:

30-Day Notice Requirement
– Notify your payment acquirer at least 30 days before starting to surcharge
– Specify whether you’ll use brand-level or product-level surcharging
– Note: Discover and American Express do not require advance notification

Disclosure Requirements
– Post clear signage at entry points and points of sale
– For online transactions, disclose surcharges before checkout in at least 10-point Arial font
– List the surcharge as a separate line item on all receipts
– Ensure disclosure states the merchant (not the card brand) is imposing the surcharge

Card Type Restrictions
– NEVER apply surcharges to debit cards, even if processed as “credit”
– NEVER apply surcharges to prepaid cards or gift cards
– Only credit cards can be surcharged

State and Local Law Compliance
– Check your state laws before implementing—some states prohibit or restrict surcharging
– Even if your state allows it, ensure your actual processing costs justify the surcharge rate
– Be aware that laws continue to evolve (Minnesota changed its rules January 1, 2025; Kansas legalized surcharging January 2025)

FAQs

Q: Can used car dealers legally add credit card surcharges in 2025?

A: Yes, in most states. However, Connecticut, Maine, Massachusetts, and California prohibit surcharging. Used car dealers in these states must absorb processing fees or use alternative strategies like cash discount programs.

Q: What’s the maximum surcharge a car dealer can add?

A: The lower of (1) your actual processing cost or (2) 3% for Visa transactions. While Mastercard allows 4%, you must apply the same rate across all card brands, effectively limiting you to 3%.

Q: Can I surcharge debit card transactions at my dealership?

A: No. Federal regulations and card brand rules prohibit surcharging on debit cards, prepaid cards, and gift cards—even if the customer selects “credit” at checkout.

Q: Do I need to notify anyone before starting to surcharge?

A: Yes. You must notify your payment processor (acquirer) at least 30 days before implementing surcharges. You must also post signage and clearly disclose surcharges to customers before transactions.

Closing Thoughts

Surcharging can be a game-changer for used car dealers, offering flexibility, improving cash flow, and enhancing competitiveness. However, it’s not a DIY project. You need a seasoned payment partner like IntelliPay, who sets you up and ensures compliance with surcharging regulations. IntelliPay’s cloud-based platform integrates with AutoManager’s Deskmanager DMS, streamlining all your payments and reconciliations.

Please reach out to  Phillip Buck 385-210-1078 or phillip.buck@intellipay.com for your free analysis and demo.