What’s a surcharge and can restaurants impose them?

A surcharge is when a merchant charges an additional fee to the customer to cover the cost of accepting credit cards. A typical surcharge might be 3 percent of the total bill. The laws regarding surcharges may vary from state to state, and each credit card network has its own rules as well.

Note: Merchants are not allowed to impose surcharges on debit transactions.

As a result of a class-action lawsuit, Visa, Mastercard and the other major card brands must allow merchants to surcharge. However the card brands have strict guidelines for surcharging and there are limits on what you can charge—usually no more than your merchant discount rate (swipe fee) up to 4 percent of the bill, and you can’t charge more for one card than another.

You should familiarize yourself with the rules for each card before considering the practice. For example, you must:

  • post a notice to your customers (at the entrance and at the register) that your establishment imposes a credit surcharge, including the rate of the surcharge and that it doesn’t exceed your processing fees 
  • have a point of\ sale system capable of disclosing the surcharge on the receipt as a separate line item, as well as reporting the surcharge in the network authorization request and in settlement
  • notify the card associations, your processor and your merchant account provider in writing at least 30 days in advance of the date you plan to start surcharging.

Do some states ban surcharges?

Ten states currently bad credit-card surcharges, saying that it is unfair to consumers: 

  • *California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • *New York
  • Oklahoma
  • Texas 

* The Supreme Court ruled in February 2017 that state surcharge bans may be challenged in court for impeding merchants’ free speech. California’s surcharge ban was challenged in federal court, and the state is currently disallowed from enforcing it. As a result, restaurants in California can impose a surcharge, even though it is technically illegal. The Supreme Court also ruled against a decision upholding New York’s surcharge ban. The case has been sent back to the Second Circuit of the U.S. Court of Appeals.

If I can’t impose a surcharge, can I give a discount for cash?

Yes, you may offer customers a discount if they use cash, or pay by check or debit card. As a matter of practice, though, you may prefer not to incentivize customers to pay cash, and you may not want to receive checks. You might also alienate customers who pay by credit card if they perceive you have raised prices to “pay" for the cash discount. It really depends on the kind of restaurant you operate and your customers’ payment habits.

If you wish to give a discount, check with your processor about what is called “cash discounting,” where your credit card rate is the baseline.

Can I require a minimum credit card purchase?

You may require minimum purchases for credit cards of up to $10. Again, check to see what requirements you must meet if you do so, such as posting a sign.

What about convenience fees?

Merchants sometimes charge a convenience fee for a payment method they do not normally accept. For example, they may charge extra for an online order if payments are normally accepted in person. Consider a theater or concert venue that allows you to purchase tickets online for a fee versus having to stand in line at the box office. Governments and universities also charge a convenience fee when taxes and tuition are paid by credit card versus by check or ACH transfer.

Convenience fees are allowed in all 50 states. As with surcharges, it is best to check with the card networks and your processor. For example, Visa allows convenience fees if:

  • The payment takes place across an alternative payment channel such as online or by phone
  • Customers are told of the fee in advance, or it is clearly disclosed
  • The fee is a flat or fixed price rather than a percentage of the sale

Is it good business to impose a surcharge or convenience fee?

The answer depends on the type of restaurant you operate and your clientele. Keep in mind that for customers who prefer to use their credit card to make purchases, a surcharge will not be popular. You have to decide whether it is worth the risk of alienating your guests, or if there is a way to raise prices to cover the cost of swipe fees if they are cutting into your margins.

The National Restaurant Association believes that restaurant operators are best postioned to decide for themselves and their customers on surcharging and what forms of payment they accept. Restaurants know their customers best, and it should be up to each establishment to decide.

Needless to say, it is best to check with your state restaurant association, the National Restaurant Association, or your legal counsel about the status of surcharging in your state. Note that if you operate in more than one state, you may surcharge in the states where it is legal.

This post is sponsored by Heartland, a Global Payments company that delivers fast, secure omnichannel payment processing and business solutions to more than 400,000 business locations nationwide. Product offerings include payments, payroll, point of sale, customer engagement and lending. Heartland is an endorsed partner of the Association.