Credit Card Surcharge Laws By State Explained

With clients preferring credit card payment options over cash and debit, credit card surcharges have become an attractive model for legal professionals to offset processing fees at their firms. However, credit card surcharge laws vary by state and require considerable research before implementing them in your practice.

In this article, we’ll explain everything you need to know about credit card surcharges, including which states allow them (and which do not), how to implement them, and the regulations that must be followed.

What Is a Credit Card Surcharge?

Each time a merchant accepts and processes a credit card transaction, they pay a processing fee to the appropriate financial institution. A credit card surcharge (or cc surcharge) is a fee enforced by the merchant to compensate for some of the cost of payment processing. This fee can only apply to credit cards—and never debit, even when a debit card is run like a credit.

Credit card surcharges are often confused with convenience fees, but there are significant distinctions between the two. Unlike surcharges, convenience fees can apply to both debit and credit card payments. A convenience fee simply reflects the acceptance of non-standard payment methods for the customer’s convenience.

As for calculating the fee, surcharges are predominantly percentage-based. However, merchants may charge a flat fee if they so choose. Convenience fees, on the other hand, are always a flat rate.

Let’s look at an example.

Imagine a local dentist’s office that typically processes in-person payments. If a patient requests to pay over the phone, the office may implement a convenience fee of $1.95.

Now, in the same office, a credit card surcharge may look like this:

When the patient chooses to pay with credit, their bill will reflect a 2% cc surcharge for services rendered. The patient is made aware of the surcharge and the fee is calculated from the total cost.

Are Credit Card Surcharges Legal?

If you’re wondering if it is legal to charge credit card fees, the short answer is yes.

The practice of surcharging was outlawed for several decades until 2013 when a class action lawsuit permitted merchants in several U.S. states to implement surcharges in their businesses.

This lawsuit sparked a chain reaction in the following years as more states adopted a pro-surcharging stance. Proponents of surcharging have argued that anti-surcharging laws drive up prices for goods and services across the board and, in some cases, may even be a violation of the First Amendment.

Credit Card Surcharge Laws by State

The legal landscape of credit card surcharging fluctuates, but as of July 2022, credit card surcharging is legal in 48 states.

Colorado is the newest state to legalize surcharging and caps surcharge rates at 2%.

States Where Credit Card Surcharges Are Legal

States Where Credit Card Surcharges Are Illegal

Currently, credit card surcharging is illegal in the following states:

• Connecticut
• Massachusetts

Puerto Rico also outlaws merchants from imposing surcharges.

For a state-by-state recap and resource directory of attorney generals, visit this credit card surcharge list by state.

Credit Card Surcharging Rules

Major credit card institutions set forth rules and regulations for merchants to follow when implementing surcharges. While there are slight variations among brands, general rules remain universal.

Below, we'll break down the most common rules for legal professionals to follow when executing surcharges at their firm.

Notify the Credit Card Institution

You must notify—in writing—major credit card institutions about your intent to surcharge. You may write a letter to your financial account representative or file paperwork provided on the credit card's website.

If you use a legal payment solution for credit card processing, like LawPay, support teams can handle the notification process on your behalf, saving you a step in the process.

Notify Your Clients

Your clients must also be made aware of your intention to surcharge. This must be written out plainly, not immersed within a lengthy contract or disguised by the fine print.

You may accomplish this by including the cc surcharge on your invoice or displaying a sign at your office. If you're using an online payment solution, this notice should be automatically included on your payment page.

Ultimately, the credit card surcharge cost is passed to the client, so it is crucial to communicate your process effectively to ensure a smooth process and positive client experience.

Do Not Surcharge More Than the Cost of Your Processing Fee

This rule stipulates that you cannot use surcharging as a means to make a profit. A surcharge cannot exceed 3%.

Colorado is the one exception to this rule. Merchants in this state may either (1) surcharge a maximum of 2% or (2) charge the actual cost the company pays for credit processing. When the second option applies, the surcharge could surpass the 2% cap.

To learn more about specific stipulations in Colorado, this article details CO Credit Card Surcharge Laws.

Do Not Implement Surcharges on Debit Card Transactions

Surcharge fees are strictly limited to credit card transactions only. Even if a client wishes to run a signature debit transaction, where a debit card is processed as a credit transaction, you are still not allowed to implement a surcharge.

Surcharges are also not applicable to prepaid cards.

List Surcharges as Separate Line Items

When drafting an invoice and tallying up transactions, you cannot add the surcharge to the total cost of the service. Each surcharge must be listed separately on your invoice and labeled clearly.

This practice reinforces transparency and makes it clear to clients that they are being charged an additional fee for using a credit card. It also simplifies the reconciliation process for lawyers, as it allows for easy tracking and recording of processing fees.

Simplify Surcharge Implementation with a Legal Payment Processor

Surcharge compliance is ever-changing and anything but simple to navigate. But it doesn't have to be a point of stress for your firm.

Legal payment processors can alleviate the burden of surcharge compliance by helping your practice to follow the latest rules and regulations and debunking any credit card myths that might arise.

At LawPay, we're committed to ethical and secure credit card processing for law firms. Whether you prefer to charge in-person or online (by computer, tablet, or mobile phone), we'll help you give clients more options to pay—with each method adhering to credit card surcharge laws.

With the LawPay mobile app, you can also accept card payments and stay compliant on the go. Just swipe, tap, or scan a card, and watch client satisfaction soar as they enjoy meeting at a convenient location and appreciate the flexibility of your firm.

To learn more ways LawPay can help implement surcharges at your firm, schedule a demo today!