Find out what processing fees are the most common, what each fee means, and what credit card processing fees are allowed by each state.
You’ve experienced it countless times: trying to pay for something with a card, only to be told by the cashier that “we have a purchase minimum for credit card transactions.”
Or, the sign that greets you on the door that announces a surcharge imposed with all credit card transactions.
You might have thought to yourself, “is this legal to charge me a credit card processing fee as a consumer? Don’t they have to just accept my payment, regardless of how I choose to pay?”
To answer that question, we’ll take a close look at the three most common credit card processing fees charged to consumers: surcharges, convenience fees, and minimum purchase requirements.
We’ll also see what each state’s laws say about processing fees, along with the credit card companies.
First, let’s look at the most common processing fee: surcharging.
Credit card surcharges
As you may have seen in our article dedicated to surcharging, this fee is from a merchant charging the consumer extra to pay for processing their credit card.
A credit card surcharge is a regulated fee that a merchant adds to every credit card purchase. These fees are regulated by both the credit card companies and state governments.
While 4% is the average surcharge fee, most states allow businesses to set their own surcharge percentage.
Now that we know what a surcharge is, we’ll next address another common processing fee consumers pay: convenience fees.
“Convenient for who?” you might ask yourself. This fee gets its name from how a merchant views a consumer who chooses a “convenient” credit card over a merchant’s standard form of payment, which is cash or check.
A convenience fee may also be issued because a purchase is made from a non-standard location, such as online instead of a physical location. Again, “convenient” for the consumer, not the merchant.
Therein lies the difference between a surcharge and a convenience fee: while surcharging is applied by a merchant to all credit card processing transactions, convenience fees depend on a variety of factors, such as location or purchase type.
These fees may be subject to regulation by the credit card companies. For example, Mastercard only allows education, government, or tax-related payments to include a convenience fee.
Since these fees vary with credit card companies, it’s best to talk with your payment processor to understand if your business is allowed to pass on a convenience fee.
One more common fee remains to be discussed, and that’s minimum purchase fees. Let’s see what those entail.
Minimum purchase requirements
As you may have guessed, this one is applied when a consumer’s total is less than a certain amount, a practice that used to be illegal but is now legal. Customers may have to pay a minimum amount or meet a certain threshold before a merchant will allow them to pay with a credit card.
A common minimum purchase threshold is $10. This is to recoup the loss a merchant has to suffer from paying the fees associated with processing a credit card.
Now that we know what the three most common credit card processing fees consumers have to pay, let’s see what states allow them.
States that allow credit card processing fees
The majority of states fully allow a merchant to pass along the cost of credit card processing to the consumer. They also don’t have a statute on discounts for different methods of payment. These states include:
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
Does that mean passing along credit card processing fees is illegal in all the other states? Not necessarily. Some don’t allow them, while others have unique laws in place.
Keep reading to find out what the remaining states say about these fees.
States that have laws on credit card processing fees
The states not listed above have their own unique laws or requirements on surcharging. Let’s see what they are:
California doesn’t allow surcharging unless the California Public Utilities Commission approves it.
It’s illegal for a merchant to pass along a surcharge to a consumer in Colorado.
A merchant cannot apply a credit card surcharge to a consumer in Connecticut, but they are allowed to require a minimum purchase amount.
Florida does not allow merchants to impose a credit card processing surcharge to consumers.
A merchant is allowed to charge a convenience fee as long as other payment options are offered to the consumer.
Kansas does not allow credit card surcharging.
Credit card surcharging is illegal in Maine, with the exception of government entities who disclose their surcharging fees before the payment is made.
Massachusetts forbids merchants to impose a surcharge for processing credit cards.
- New York
Credit card surcharging is illegal in New York.
The only entities allowed to surcharge are money transmitters who are registered with the U.S. Treasury Department.
Texas only allows government entities or private schools to issue a credit card surcharge.
When it comes to the legality of passing on credit card fees to the consumer, it really depends on where you’re doing business. As listed above, different states have different rules. Some allow it, others limit it to certain entities, while still others outright forbid them
However, it’s noteworthy that all states allow a system to encourage consumers to use cash for payments instead of credit cards. This system is called Cash Discounting. It’s a simple way for merchants to not have any fees to begin with, thus no need to pass anything along to the consumer.
Just how does Cash Discounting work? Find out for yourself by reading about it here, along with real-world examples that show you why this may be the program for you.