If you’re paying with plastic, you’ve probably seen some merchants add surcharges to credit card purchases. This can lead you to ask: is this legal at all?
The short answer is yes. As of 2013, it became legal for customers to use a credit card, and retailers may also need a minimum purchase when using a credit card. But merchants have to follow certain rules when adding credit card surcharges.
Where the laws came from
If it’s a surprise that retailers can do this, you are not alone. The laws allow credit card surcharges and minimum purchases are relatively new.
Surcharges: Because of a class action lawsuit against card issuers and banks, merchants won the right to start adding or “cashier” fees in January 2013, but most merchants were (and continue to be) slowly adopting credit card surcharges. Two factors can explain that:
- Some retailers, like many consumers, may not know about their ability to charge additional ones.
- Traders are reluctant to upset customers or promote the perception that they are nickel and diming customers.
Minimum Purchase: Retailers also used to allow minimum purchase terms after 2013 due to the Durbin amendment (part of the Dodd-Frank Act that was passed as a result of the financial crisis). The minimum was originally more than $ 10, but this number may increase in the future, probably due to inflation.
In the past, retailers were not allowed to place minimums or surcharges. But it was not uncommon for merchants to “unofficially” force a minimum purchase. These practices were not necessarily illegal at the time, but they violated merchant approval with their credit card companies. That is, traders rarely break the rules.
States weigh on credit card surcharges
While adding a surcharge to credit card transactions is legal under federal law, some states prohibit the practice. Ten states already had laws on the books prior to 2013. Now that merchants can officially apply supplements, other states are also considering outlawing practice. The states that make credit card surcharges illegal at the time of writing are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Puerto Rico also bans surcharges.
When merchants choose to use credit cards, they must meet certain requirements:
- You must clearly state the fact that there is a surcharge to you before every transaction.
- Your receipt must show the credit card surcharge.
- The surcharge cannot exceed the amount the dealer pays or 4 percent (you pay the smaller of these two, usually 2 to 3 percent).
Debit cards? To clarify, surcharges and minimum purchase terms are only allowed for credit card purchases – not debit card transactions (even if you sign your debit card transaction instead using your PIN).
Break the rules
Don’t be surprised to find dealers breaking the rules. Regulations are confusing for everyone, and some traders deliberately choose not to follow them. So what can you do if someone imposes an illegal credit card fee?
First, note that the owner is not familiar with the rules and laws regarding credit card surcharges. She has a lot to deal with, and cutting her own earnings is not on the top of her priority list. If it’s a small business or convenience store, just let them know that you may think they are breaking the rules. It is in their best interest to know this as they avoid problems with credit card companies and regulators. Large companies should already be well aware of the rules.
Companies with a loyal fan base always let their customers know that they prefer not to use credit cards, and they may even be able to offer discounts on cash purchases.
How to have problems there
If a company is blatant to break the rules and you want to do something about it, you can report the business to credit card companies that have signed contracts with those companies that prohibit such activity. Report violations by calling your card issuer using the number on the back of your card, or filing a complaint online:
- A report on Visa transactions
- A report on Mastercard transactions
If companies blatantly violate the law (by adding surcharges to states that prohibit them or surcharging more than is permitted by federal law), you can also report attorney general to your state.
Why Companies Take Risk: If you’re curious to know why companies might be willing to break the rules and laws, their argument is this: They have to pay fees to accept credit cards that are generally in the range of 1 to 3 percent of every transaction (Debit card fees are lower than credit card fees, and they can pay per-transaction costs. In some industries, especially small purchases, it is difficult to make money when customers pay with a credit card.
If you want to support small businesses and local businesses, try to avoid paying with credit cards and tell your friends to do so. Less expensive payment processing helps the merchant hold more of what they ask for, and they won’t be tempted to bend the rules like that.