Surcharges and Checkout Fees: Navigating the Mine Field

by Smith Anderson

In November 2012, Visa and MasterCard agreed to alter their credit card surcharging rules as part of a settlement related to the class action case In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. Also known as a "check-out fee," a surcharge allows merchants to pass on to consumers the costs associated with accepting credit cards. Visa and MasterCard issued final surcharge rules in January 2013, which provide additional details on how merchants in the United States can surcharge their Visa and MasterCard transactions starting January 27, 2013.

These rules are potentially a significant benefit to merchants that pay an estimated $40 billion, annually, on credit card swipe fees.  However, before surcharging, a merchant should consider the expected response from customers and how surcharging will impact its competitive position in its industry.  Due to these concerns and the other issues summarized in this client alert, there has not been widespread adoption of surcharges by merchants in the marketplace.

Surcharging with Visa and MasterCard

Although Visa and MasterCard basic rules now permit surcharging, Visa and MasterCard can still prohibit surcharging under individual contracts. Credit card companies that were not party to the settlement (e.g., American Express) still prohibit certain surcharging practices. Furthermore, the contracts that govern transactions with other credit card companies may impact a merchant’s ability to surcharge Visa and MasterCard transactions. In addition, before surcharging Visa and MasterCard transactions, merchants must verify that surcharging is permitted in the states in which transactions are made.

Therefore, in order to surcharge Visa and MasterCard transactions, merchants in the United States must navigate a maze of conflicting private contract obligations and public laws. The purpose of this client alert is to provide a basic outline of the private rules and state laws that govern surcharging Visa and MasterCard transactions. This client alert also addresses some of the pitfalls that merchants may encounter as they try to implement a surcharging policy.

Basic Rules: Notify, Limit, and Disclose

The Visa and MasterCard rules that govern surcharging are part of their respective International Operating Regulations manuals. As outlined below, the basic rules require merchants to notify Visa and MasterCard of their intent to surcharge, limit surcharges pursuant to the rules, and disclose surcharging practices to customers.


  • To surcharge, a merchant must notify Visa or MasterCard at least 30 days prior to implementing a surcharging policy.


  • Surcharging is still not allowed on any debit card or pre-paid card transactions or where prohibited by state law. The landscape of current state law is discussed below.
  • Merchants who surcharge on Visa or MasterCard transactions must add an equivalent surcharge to all credit cards that charge an equal or higher transaction fee. As discussed below, conflicts with other credit card contracts may restrict a merchant’s ability to surcharge.
  • Surcharging percentage caps apply, which are generally limited to the costs that the merchant pays to accept cards (and in any event, no greater than 4% per transaction).
  • A merchant may either surcharge at the “Brand Level” or the “Product Level.” The ability to surcharge at the “Brand Level” means merchants may surcharge every Visa or MasterCard branded product at the level of the overall cost of accepting Visa or MasterCard products. The ability to surcharge at the “Product Level” means merchants may surcharge specific Visa or MasterCard products at the percentage level associated with those specific products. For instance, a merchant might add a 2% surcharge for all Visa products. Or it might add a 3% surcharge on Visa Signature, a 2% surcharge on Visa Traditional, and a 1% surcharge on Visa Traditional Rewards. (These percentages are used for illustration purposes only. The percentages that a merchant may charge will depend on the costs that the merchant actually incurs from accepting different credit card products.)


  • Merchants must disclose their surcharging policy to their customers at the point of entry, the point of sale, and on the receipt.
  • Specific rules govern what qualifies as adequate disclosure.

Individual Merchant Prohibitions

The rules outlined above are the general rules governing Visa and MasterCard transactions, but nothing in the settlement forbids Visa or MasterCard from prohibiting surcharging in individual merchant contracts. In order for Visa or MasterCard to prohibit surcharging in an individual contract, the following conditions must be met: (1) the contract has a fixed duration, (2) the contract does not contain an evergreen provision, (3) the contract is individually negotiated, and (4) the surcharge prohibition is supported by “independent consideration.”

State Laws on Surcharging

The Visa and MasterCard settlement does not override state law. Surcharging is prohibited in the following eleven states: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Texas and Utah. Also, laws that would ban surcharging in states where it is currently permitted are pending in approximately 20 additional states. Lastly, since the settlement is limited to the United States, surcharging is still prohibited in transactions outside of the United States.

Multi-State Merchants

It was initially anticipated that merchants who operated in numerous states would not be able to surcharge if the merchant operated in at least one state that prohibits surcharging. However, Visa and MasterCard explicitly state in their surcharging rules that merchants who process transactions in multiple states may surcharge in the states where it is allowed while simultaneously avoiding surcharging where it is prohibited.

Cash Discounts and Convenience Fees

State surcharging laws often have exceptions that vary by state. Utah, for instance, allows surcharges for transactions larger than $10,000. In California, surcharging is prohibited, but cash discounts are allowed. Also, some states that specifically ban surcharges provide an exception that allows merchants to charge convenience fees. Although the Visa and MasterCard settlement did not address Visa’s or MasterCard’s convenience fee policies, most credit card contracts limit convenience fees to a flat rate of around $5. Thus, charging a convenience fee is not a strong alternative to surcharging in the states that prohibit surcharging.

Surcharging with Other Credit Cards

In addition to state laws prohibiting surcharging, another obstacle to a merchant’s ability to surcharge is the terms of other credit card companies that the merchant uses. While other credit cards may permit surcharging, if other credit cards have different or additional surcharging rules, a merchant may be unable to surcharge on any of its credit cards.

A quick case study illustrates how different credit card surcharging rules may be incongruent (with percentages used for illustrative purposes only): Merchant A currently accepts American Express and Visa credit cards and debit cards. Merchant A wants to add a 2% surcharge to Visa credit card transactions. Visa’s rules permit this surcharge, but require Merchant A to add the same 2% surcharge to American Express transactions. Merchant A's American Express operating agreement allows such surcharging for its transactions, but only if every one of Merchant A’s card-based transactions (including debit card transactions) are treated equally (this is typical for American Express operating agreements). Since Visa’s rules do not allow Merchant A to surcharge Visa debit cards, Merchant A is not able to comply with American Express’s rules for surcharging. Thus, Merchant A cannot surcharge Visa or American Express transactions. This same dynamic could be applicable to each different credit card a merchant accepts.

Because of the complexity of operating under different credit card rules and different state laws, Smith Anderson encourages merchants to speak with an attorney before implementing a surcharge policy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Smith Anderson | Attorney Advertising

Written by:

Smith Anderson

Smith Anderson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.