If you regularly use a card at checkout, you may have encountered an added service fee for paying with your card. While businesses were not allowed to charge fees for paying with plastic in the past, updated rules allow companies to add a surcharge or fee when customers use a card for payment.

Keep reading to learn how businesses can charge extra when using a credit card.

What are credit card processing fees?

Businesses must pay a modest credit card processing fee whenever a customer makes a card-based payment. Fees are often around 1% to 3% of the transaction amount, which merchants pay to their credit card processor. So, for example, when you make a $100 purchase at a local restaurant or store, the seller only gets about $97 to $99, with the remainder going to credit card processing fees.

Fees are divided between the card network (Visa, Mastercard, American Express and Discover, for example), the merchant’s processor (such as Square, Stripe, PayPal and major banks) and potentially other companies involved in transaction processing.

Understanding surcharges vs. convenience fees

You may come across convenience fees and surcharges when shopping online or in person. While it’s never fun to pay extra, understanding how these fees work may help you avoid or better control them.

Convenience fees are add-on charges related to extra services. For example, if you buy a movie ticket online or by phone through a third-party service, the third party can charge a convenience fee. If you’ve bought concert tickets through a service like Ticketmaster, you’re likely very familiar with convenience fees. If a business normally accepts cash payments, they may add a convenience fee for credit card sales.

Surcharges are add-on charges that help companies to recoup the higher cost of a credit card transaction. If a business adds a surcharge to credit card payments, it’s to offset the 1% to 3% fee they’re likely paying for credit card processing.

Note: In place of surcharges, some businesses require a certain minimum purchase amount for card-based payments to ensure they earn enough to cover the added costs.

How much are typical credit card transaction fees?

When you go to the register in most states, you shouldn’t be shocked to see a surcharge added to your purchase. Surcharges vary based on the location and merchant.

Before 2013, surcharges were generally nonexistent. After a class action lawsuit against Visa and Mastercard, businesses won the right to mark up card-based purchases to help cover their added costs. Surcharges may be up to 4% of the purchase at most but are often around 2% to 3%, in line with the seller’s processing fees.

At gas stations, you may have noticed some sellers mark up purchases by $0.05 or $0.10 per gallon when paying by card. They may call the cash price a discount, but regardless, you’ll pay more at some gas stations when paying with a debit or credit card because of the surcharge.

State or local governments may regulate credit card transaction fees. We’ll break down which states allow surcharges and which prohibit or limit them below.

Are credit card fees legal?

Credit card surcharges are legal unless otherwise prohibited by state or local law. Certain states have specific disclosure requirements, while others limit what businesses can add as a credit card surcharge.

While laws can change at any time, only 10 states currently impose some type of restriction or disclosure requirement on credit card surcharges. Connecticut, Maine, Massachusetts and Oklahoma prohibit or limit surcharges.

Credit card surcharge legality across the U.S.

Federal court cases regarding surcharge legality may override state laws in some situations. Here’s a glance at states with laws that restrict or prohibit card surcharges.

Credit card fee rules and regulations

If you run a small business and want to set credit card surcharges, it’s important to take several steps. Those include:

• Research state laws and regulations.
• Check rules and limitations with your credit card processor.
• Notify the processor of planned surcharges if required.
• Create signage or disclosures notifying customers if required by state law.
• Train employees to disclose surcharges orally if required by state law.

Do payment processors handle surcharges?

Check with your payment processor to learn more about how surcharges work. In some cases, you need to add the surcharges in your sales or credit card processing systems. In others, you may have to work with the processor to have them adjust your sales to include the surcharge.

Check out our list of the best payment processing companies to learn what to expect when working with different credit and debit card processors.