Surcharging Vs Dual Pricing – What Small Business Owners Need to Know Now

Updated October 2025

With costs rising quickly, small business owners are looking for ways to cut costs and increase profits. One area to look at is payment processing costs. For example, Credit cards average 2.6% of each sale. If your business runs a 10% net profit- it takes $26,000 of sales to cover that $2,600.

That’s why business owners look at surcharging and dual pricing programs. They help lower costs and increase profit. The challenge is to find and use a dual pricing program that follows the rules. This is hard because laws and regulations keep changing – California’s “Honest Pricing Law,” also called SB 478, started on July 1, 2024. This law mandates that businesses include all necessary fees in the advertised price of their products or services.

Additionally, the FTC’s Rule on Unfair or Deceptive Fees took effect May 12, 2025, but applies ONLY to live-event ticketing and short-term lodging (hotels, vacation rentals). It does NOT directly regulate surcharges for retail, restaurants, or most businesses. However, all industries remain subject to Section 5 of the FTC Act for deceptive pricing practices

Merchants should know the difference between dual pricing and surcharging to decide what’s right for their business.

Surcharging

A surcharge is a charge added to the price of a good or service. Surcharge fees apply to transactions where the customer chooses the convenience of using a credit card. Surcharges on debit cards are prohibited. Surcharges are a set percentage added to the total cost of goods or services before taxes.

“Surcharge fees are currently prohibited in California, Connecticut, Maine, Massachusetts, and the U.S. territory of Puerto Rico. Note: New York does not prohibit surcharging but has strict disclosure requirements.

According to card brand rules, surcharges cannot exceed the merchant’s actual processing cost or the card brand maximum, whichever is lower:

• Visa: 3% maximum (as of April 2023)
• Mastercard: 4% maximum
• American Express: 4% maximum
• Discover: 4% maximum”

Listed below is a summary of what a merchant needs to do to have a legitimate surcharge program:

• Must disclose a surcharge to customers at business entrances and point of sale.
• Do not use creative terms to label a surcharge fee, such as non-cash adjustment, non-cash fee, or service fee.
• Complies with card brand rules of applying a surcharge to the posted price
• Applies surcharge to all card brands equally
• Distinguishes between credit, debit cards, and prepaid cards
• Cannot exceed 3% of the total transaction or the merchant’s cost of processing
• Discloses the surcharge on the customer’s receipt or with notices in-store or online before completing a purchase
• Applied only to U.S. transactions (international transactions are exempt)
• Must register with card networks (Visa, Mastercard) at least 30 days before implementation
• Cannot surcharge debit cards, prepaid cards, or gift cards (federal prohibition)
• Surcharge must appear as separate line item on receipt
• Must offer alternative payment methods without a surcharge
• Cannot generate profit from surcharges—must only offset actual costs

Surcharge Laws Can Vary by State

It is important to note that laws are not consistent across states.

Surcharge fees are currently prohibited in California, Connecticut, Maine, Massachusetts, and the U.S. territory of Puerto Rico. New York allows surcharging but has strict disclosure requirements: as of February 2024, merchants cannot list a separate surcharge line item, and surcharges cannot exceed the merchant’s actual processing cost

We suggest that small business owners check the laws in their states before adding a surcharge.

Recent State Changes (2025):

Kansas: As of January 1, 2025, surcharging is now legal with proper notice requirements after previous prohibitions were overturned.

Oklahoma: As of November 1, 2025, surcharging is legal with restrictions. Maximum of 2% or actual processing cost (whichever is lower). Requires clear disclosure and alternative payment methods must be available.

Minnesota: As of January 1, 2025, House File 3438 requires mandatory fees to be included in advertised prices unless consumers can reasonably avoid them (e.g., by paying cash). Merchants must verbally inform customers about surcharges. Maximum penalty of $500 per violation.

Virginia: As of July 1, 2025, Senate Bill 1212 requires clear and conspicuous display of total prices including all mandatory fees. Civil penalties up to $2,500 per violation ($5,000 for subsequent violations).”

Penalties for non-compliance can be severe:

Card Network Fines:

• Acquirers may be fined $1,000 for each non-compliant merchant (passed to merchant)
• Merchants could face fines ranging from $50,000 to $1,000,000 for violations
• Visa has increased enforcement efforts starting in 2024

State-Level Penalties:

• Minnesota: $500 per violation
• New York: $500 per violation
• California: $1,000 per violation (SB 478)
• Virginia: $2,500 per violation ($5,000 for subsequent violations)

Additional Consequences:

• Loss of merchant account or card acceptance privileges
• Required refunds of improperly collected fees
• Increased scrutiny and audits

Dual Pricing

A compliant dual pricing program requires merchants to post and advertise credit prices, which include the costs of processing credit cards. When a customer pays with cash or an in-store gift card, the price at the point of sale decreases. Legal cash discount programs present a clear receipt detailing the fee or cash discount amount.

“For example, a merchant posts prices that include a 4% processing cost built into all advertised prices (the card price). Customers paying with cash receive a 4% discount at the point of sale. On a $100 base item, the advertised price would be $104. Customers paying with cash are given a discount and pay $100.

Why a Dual Pricing Program is Not a Surcharge

Cash discounts are permitted in all 50 states, whereas surcharging is currently prohibited in California, Connecticut, Maine, and Massachusetts, plus the U.S. territory of Puerto Rico.

Often, people associate cash discount programs with surcharging and hybrid, which has caused much confusion for business owners. It is also not a surprise that since the COVID-19 pandemic, there has been an increase in non-compliant cash discount programs. When asked about cash discounting and the confusion that exists, Visa made the following clarifying statement:

“A discount for cash is different from a surcharge. The rule states that the posted price must be for cards; however, merchants can provide a lower price for cash acceptance. Discounts for cash are allowed by Visa. However, merchants are not permitted to post a cash price and then charge a higher price for cards.”

The authority on cash discounting is in the Durbin amendment of the Landmark Dodd-Frank Act.

The amendment says that businesses can give discounts to customers. This encourages them to pay using methods other than credit or debit cards. You can also use checks or cash to get a discount at the time of purchase.

When Dual Pricing is Not Allowed:

Here are a few situations where a cash discount is not allowed:

• Advertised Price: If a business shows a sale price lower than the normal price, it cannot give an extra cash discount on that sale price.
• Financing: When a business offers financing or credit terms, you cannot offer a cash discount. For example, if the business offers 12 months of interest-free financing, it cannot give a 10% discount for cash payments.
• Sales Tax: A business cannot apply a cash discount to sales tax. For example, if a city requires a 5% sales tax, the business cannot provide a 10% discount for cash payments.

State Considerations for Dual Pricing:

While dual pricing is legal in all 50 states, some states have specific disclosure requirements:

• California: SB 478 requires all mandatory fees in advertised prices. Dual pricing remains legal because the posted price is the card price.
• Minnesota: Fees must be avoidable to be disclosed separately. Dual pricing complies because customers can avoid the fee by paying cash.
• Virginia: Total price must be clearly displayed, but dual pricing is permitted with proper disclosure.

Always consult with legal counsel to ensure your dual pricing program complies with both federal and state requirements.

When A Dual Pricing Program is Non-Compliant

Dual pricing programs are non-compliant when they post cash prices but add a fee at the point of sale. This type of cash discount program falls under card network surcharge rules, which makes the program non-compliant.

The Penalties are Severe

A non-compliant dual pricing program risks fines and the loss of your merchant account.  Fines start at around $1,000 per occurrence and can increase up to $25,000 per occurrence for repeat violations.

Implementing A Compliant Dual Pricing Program

A business must tell customers at least once before they buy that there is a fee for all purchases. They should also let customers know there is a discount when paying with cash.

It is required to put notifications at store entrances, sales areas, and other places in the store. A verbal notice should also be given at the point of sale. It’s essential to use the right words when giving a verbal notice.

 For example, “Would you like to save (X amount) today by paying in cash or using your card?” A best practice is for the merchant to have a handy quick reference guide to give customers with additional questions.

Key Requirements for Compliant Dual Pricing:

• Posted Prices Must Be Card Prices: The advertised/displayed price must be the credit card price. Cash customers receive a discount at checkout.
• Equal Prominence: If showing both prices, they must be displayed with equal prominence (same size, visibility).
• Receipt Requirements: Receipts must clearly show the discount as a separate line item.
• Signage Examples:
  • ✅ CORRECT: “All prices reflect a 3% service fee. Save 3% by paying with cash.”
  • ❌ INCORRECT: “$100 (cash) / $103 (card)” where cash price is more prominent
• Training: Staff must be trained to explain the program without misleading customers.
• Consistency: Must apply the program uniformly across all transaction

Reduce Friendly Fraud Risk

One drawback of accepting credit card payments is the risk of “friendly fraud” or chargebacks. Chargebacks are expensive and can damage a business’s reputation. A business with too many chargebacks will have a high chargeback ratio. This may cause higher fees and lead to losing the ability to process payments. For more detail on chargebacks, please see our post on Chargebacks and How to Avoid Them.

The good news is with a dual pricing program, your business can reduce chargebacks.

Summary

Dual pricing and surcharging can be complicated.

• A program that follows the rules needs a payment provider who knows about fees and the latest laws.
• An experienced payment process ensures your business remains compliant.
• IntelliPay is a payment service made for small business owners and merchants. It helps them reduce or eliminate credit card fees.
• It offers fully compliant surcharging and dual pricing options.

  For more information, contact an IntelliPay consultant at 855-877-6632 or http://intellipay.com/talk-to-a-consultant/

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.