Passing Credit Card Fees to Customers: What Small Businesses Need to Know

aa . Accepting credit card payments has become essential for businesses of all sizes. However, credit card processing fees can quickly eat into your profits. To offset these costs, many businesses consider passing the fees onto customers. But is it legal? And how can it be done without alienating your customers? Let’s dive into the details.

What Are Credit Card Fees and Why Do They Matter?

Whenever a customer uses a credit card to make a purchase, the merchant pays a fee to process that transaction. These fees, often called interchange fees, typically range between 1.5% and 3.5% of the transaction amount. For small and medium businesses, these costs can add up quickly, impacting your bottom line. Passing these fees to customers—commonly known as surcharging or convenience fees—can help you recover some of these costs. But it’s not as straightforward as simply adding a percentage to every bill.

Is It Legal to Pass Credit Card Fees to Customers?

The legality of passing credit card fees to customers varies by location and payment method. Here are the key factors to consider:

1. U.S. Federal and State Laws

In the United States, it is generally legal to pass credit card fees to customers, but there are strict regulations you must follow. Here are ways you might choose to pass on the fees:

Cash Discount:
Cash Discount allow businesses to offset merchant fees by offering a price reduction to customers who pay with cash instead of a credit card. Here’s how it works:

Posted Prices Include Card Fees: The business lists prices that already include the cost of credit card processing fees.
Cash Discount Incentive: Customers who choose to pay with cash receive a discount, effectively removing the processing fee portion from the total price.
Transparent Communication: Clear signage must inform customers that the listed prices are for card payments and that a lower price is available for cash payments.

Dual Pricing
Dual Pricing provides businesses with a straightforward way to present both cash and card prices to customers:

Separate Pricing Display: Prices for cash payments and card payments are displayed side by side, ensuring customers are aware of their payment options.
No Surprises: Customers can easily decide how they want to pay, knowing the exact cost for each method upfront.
Compliance-Friendly: This method complies with card brand rules, as it offers a choice rather than imposing a fee after the transaction amount is determined.

Surcharging:
Surcharging enables businesses to recover the cost of credit card processing fees by adding a fee to credit card transactions. However, specific rules and restrictions must be followed:

Notification Requirements: Notify both the credit card company and your customers about the surcharge. Most card networks require at least 30 days’ notice before implementing a surcharge.
State Restrictions: Some states, such as Connecticut, Kansas, and Colorado, either prohibit surcharging or heavily regulate it. Research your state’s laws to ensure compliance.
Transparency: Clearly display the surcharge amount on customer receipts and at the point of sale, whether in-store or online.

2. Card Network Rules

Credit card networks like Visa, Mastercard, and American Express have their own rules about surcharging. For instance, Visa and Mastercard cap surcharges at 4% of the transaction amount and require you to display clear disclosures.

3. Payment Methods

If you accept debit cards, be aware that surcharges are not allowed on debit transactions, even if the customer selects “credit” at checkout.

Best Practices for Passing Credit Card Fees to Customers

If you decide to implement surcharging, follow these best practices to ensure a smooth process:

1. Know Your Audience

Consider your customer base before adding fees. If your business competes heavily on price, surcharges could deter some customers. However, if your customers value convenience and quality, they may be more understanding.

2. Communicate Clearly

Transparency is key. Make sure customers are aware of the fees before completing their purchase. Use signage at your store or clear messages on your website to explain the surcharge.

3. Work with a Trusted Merchant Services Provider

A reliable merchant services provider, like AdaptMS, can help you navigate the complexities of surcharging. We’ll ensure your business complies with all legal and card network requirements, while also minimizing processing costs.

4. Offer Alternatives

To maintain customer satisfaction, consider offering fee-free payment options such as cash, checks, or ACH transfers. This gives customers a choice and helps mitigate negative feedback.

How AdaptMS Can Help Your Business

At AdaptMS, we specialize in helping small and medium businesses optimize their payment processing solutions. Whether you want to implement surcharging or explore other cost-saving strategies, our team is here to guide you every step of the way. Our experts will:

Ensure you comply with all state and federal laws.
Help you integrate surcharging seamlessly into your payment system.
Provide ongoing support to address any customer concerns.

Passing credit card fees to customers can be a smart way to protect your profit margins, but it requires careful planning and compliance. By staying informed and working with a trusted partner like AdaptMS, you can implement surcharging without sacrificing customer satisfaction.