The answer in most cases is yes. More and more merchants these days are choosing to pass on the cost of credit card acceptance to the cardholder by charging extra to pay with a credit card. Charging to pay by card has been around for years in one form or another, but with the recent card brand settlement allowing surcharging and advances in surcharging payment tech, merchant adoption of the practice has been gaining steam in recent years. However, since we are talking about credit card processing, there is, of course, a great deal of confusion about how it all works, what the rules are, is it legal, what signage do I need, etc.

Credit Card Surcharging

Surcharging is when a business charges a fee to cover the cost of accepting credit cards. Prior to the card brand settlement, merchants were prohibited from surcharging. Post-settlement, businesses are allowed to surcharge, but there are strict guidelines from the card brands:

  • The surcharge must be a percentage of the sales amount and cannot exceed 4 percent or what the merchant pays in swipe rates.
  • Surcharges cannot be levied on debit cards or prepaid credit cards.
  • Surcharges cannot be levied where they are prohibited by state law (currently CO, CT, KS, ME, MA and OK).
  • Signage must be posted at the entrance and the point of sale stating that you impose a surcharge, disclose the amount of the surcharge, and that the surcharge does not exceed your processing fees.
  • The surcharge must be disclosed on the receipt as a separate line item.
  • The surcharge must be reported in the network authorization and settlement.
  • You must provide 30 a day notice to the card associations of your intent to surcharge.

If you are processing cards with a compliant surcharging solution, like the one we supply via Elavon, then almost all of the above will typically be provided by your merchant service provider and be “automatic”: a set surcharge amount, excluding debit cards automatically, disclosing the surcharge as a separate line item, reporting the surcharge in the network authorization and settlement, signage, and providing notice to the card brands.

Due to the requirements to report the surcharge in the auth and settlement, notify the card brands, and avoid surcharging debit cards, it’s pretty much impossible to have a compliant DIY surcharging set-up. If you want to surcharge, you must use a program provided by your merchant processor.

Cash Discount Program

A cash discounting program is when a business offers a discounted price for “paying your bill in full, in cash.” Cash discounting has been around for years. Think of a gas station that has two prices: a lower price for cash and a higher price for credit, and you’re seeing a cash discount program in action, and there has been cash discounting long before gas stations. 

Before credit cards, when everything was paid in cash or check, businesses would offer a discount for paying in full in cash on delivery, rather than waiting 30-60 days to get a check in the mail, that might bounce, and that they could have to pay an extra “interchange fee” for the check to go from one bank to another…does that last bit sound familiar?

In order to offer a cash discount program, businesses must disclose to customers that a discount is available when they pay with cash. There must be signage disclosing the discount and all prices displayed must be either the higher, credit price or two prices must be displayed, one price when they pay credit, and a lower, discounted price when they pay cash. For example, BOTTLED WATER, would have two prices, a regular price: $1.04, and a discounted price when you pay cash: $1.00. The cash discount is usually 3-4% of the sale.

Can you DIY a cash discounting program? Thanks to the 2010 Durbin Amendment, cash discounting is legal in all 50 states, so you can do things on your own without as many requirements as the card brands put on surcharging, but most merchant service providers now offer compliant cash discounting programs, so unless you have a lot of infrastructure to create a proprietary system, you are usually better off going with a cash discounting specific processing solution, like our Spot On Cash Discount program: fully compliant, automatic and customer-friendly.

Convenience Fees

A convenience fee is an extra fee charged on top off a purchase because the merchant is providing with an alternative payment option. Similar to cash discounts, convenience fees have been around for a long, long time. 

You feel the convenience fee when you pay your taxes, or a traffic ticket, or a utility bill, or tuition, or a ticket to the movies online. These are all alternative “non-standard” payment methods. The government, power company, university, movie theater are all doing you a big favor by letting you pay online or over the phone! Normally, you’d have to go stand in-line to buy tickets or mail a check to pay that ticket, so we need to charge you extra for the hassle! Set aside for a minute the utter absurdity in this day and age of the premise that an online payment is still considered “alternative”, and you have the basis for the convenience fee: you are not paying extra because you are paying by card, but for the privilege of paying online or over the phone.

A convenience fee should be a flat dollar. Like cash discounting, convenience fees are allowed in all 50 states, and similar to surcharging, the card brands have some rules to follow regarding disclosure to the cardholder and making sure the fee is fixed or flat, so always check with your merchant service provider and consult the card brand websites for the latest information.

Convenience fees are probably the most DIYable option of the the three. “Alternative payment methods” can cover a lot of ground. Think of the restaurant that never had online ordering before the pandemic, now they can charge an extra flat fee on every order thru the site. The proliferation of e-invoicing solutions for all sorts of businesses that never even took cards before: plumbers, therapists, contractors, these are all alternative payment methods flying out all over the place that are eligible for extra fees.

Whatever You Decide To Do

Always check with your processsor and the card brands for the latest information on surcharging, cash discounts, and convenience fees before making any changes.