What is a credit card surcharge and why do I have to pay the fee?

In recent years, many businesses have started to impose a fee on customers who choose to pay with credit cards. But why is that?

Merchants are required to pay credit card companies every time a customer swipes their card. The business is charged a transaction fee ranging from 1.5% to 3% of the total purchase amount. This is the main reason for the surcharges.

According to research done by the Nilson Report, in 2022, U.S. merchants paid $126.35 billion in credit card processing fees. That’s 20% more than they paid in 2021 because credit card spending increased by 18%. It is becoming more common for consumers to pay with credit cards, which means a business is paying more processing fees. Patti Riordan, owner of Smoke Stack Hobby Shop in Lancaster, Ohio, told USA Today that “the cost of credit card fees is our number three cost of doing business behind payroll and rent.” Victor Garcia, longtime owner of Sol Dias, an ice cream shop in the Dallas metro area, told CNBC “Last year, they [processing fees] cost us $25,000. This year, they’re going to cost us close to $30,000.” Many businesses can’t afford to continue paying the fee and, as a result, have begun to pass these fees onto the customers who choose to use credit cards as their form of payment.

But you may be asking yourself, are credit card fees legal? Credit card surcharges are handled differently, varying by state. Surcharges are legal in over 40 states where there are no prohibitions on credit card surcharges and no statute on discounts for different payment methods. In a few states, such as California and Maine, anti-surcharge laws remain in place, prohibiting businesses from charging fees. Other states, like Massachusetts and Connecticut, have laws stating that credit card surcharges may not be applied by any seller, but sellers may set a minimum purchase amount or offer discounts for payment by cash, checks, or other payments*.

Be sure to ask the next time you pay with a credit card if the merchant has imposed a surcharge fee so you can decide how you want to pay. The surcharge fee may seem small, but as more and more businesses start implementing surcharges, those fees add up over time.

* To learn more about your states surcharge laws, check out the Bankrate Surcharge Legality by State chart.