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What are credit card surcharges and where are they legal?


What is a credit card surcharge?
A surcharge is an extra fee that a business or merchant adds to the price of a purchase when payment is made using a credit card instead of cash. The surcharge is often a percentage of the overall purchase cost and can range from 1% to 4%.

These fees began to be passed on to consumers in 2013, following a class-action lawsuit that businesses and merchants brought against Visa and Mastercard in response to such costs. As part of the lawsuit settlement, the surcharge fees merchants had historically been charged by credit card companies and payment processors could be passed to consumers.

“Prior to 2013, any charge added solely for acceptance of a credit card was prohibited by the card processor rules and requirements,” said Jeff Fortney, senior associate with the Strawhecker Group, a payments consulting company. “The changes occurred in response to the class-action suit settlement. The card processors agreed to allow a specific structure for fee assessment at time of sale. This structure is the basis of today’s surcharge programs.”

That surcharge structure allows merchants to add fees as high as 4% to consumer transactions—though the exact amount charged varies from business to business and based on the specific type of card being used to make the purchase.

“Merchants accepting credit cards as a form of payment to their business must pay credit card processing fees such as interchange and discount costs, which vary on each credit card,” said Jennifer Vartanov, chief financial officer for Merchant Industry, a credit card processing company. “When a merchant intends to surcharge, they are offsetting the costs that they would be paying by applying a surcharge to the transaction. The name ‘surcharge’ is to advise consumers that there is an added fee—which is the cost of accepting the credit card they are presented with—to their total checkout amount.”

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