Surcharge (payment systems)

surcharge, also known as checkout fee, is an extra fee charged by a merchant when receiving a payment by cheque, credit card, charge card or debit card (but not cash) which at least covers the cost to the merchant of accepting that means of payment, such as the merchant service fee imposed by a credit card company.[1]

A surcharge may be prohibited by card issuers, such as Visa and MasterCard, but the enforcement of the prohibition is not uniform. Some jurisdictions have laws which require, allow, regulate or prohibit a merchant imposing a surcharge. If no surcharge is permitted, the merchant’s costs are borne by the merchant, who may incorporate the burden in its prices. In some jurisdictions, when a customer pays with cash, the merchant may offer a discount.[2]

Regulation of surcharging

United States of America

In Expressions Hair Design v. Schneiderman, the United States Supreme Court held that New York’s “no-surcharge” law regulates speech, and remanded to the Second Circuit Court of Appeals to determine whether the law can survive First Amendment scrutiny. The New York law prohibits businesses from posting a cash price and adding a fee when customers choose credit (a “credit card surcharge”). However, the law permits businesses to post a credit card price and charge less when customers choose cash, check, or equivalent means (a “cash discount”). Because these two pricing regimes are economically identical and different only as a matter of framing, the Supreme Court determined that the New York law regulates not the prices themselves, but instead the communication of prices.

Similar “no-surcharge” laws exist in 9 other U.S. states. The Florida “no-surcharge” law was found unconstitutional in Dana’s Railroad Supply v. Bondi,[3] and the California “no-surcharge” law was found unconstitutional by a federal district court in Italian Colors Restaurant v. Harris.[4] The Texas “no-surcharge” law faces a pending legal challenge.[5] Currently, businesses in 44 states are permitted to surcharge consistent with the rules promulgated by Visa and Mastercard.[6][7]


Since the Reserve Bank of Australia’s 2003 requirement that the card brands remove the ‘no-surcharge’ rules that had previously been in effect, Australia has seen a significant increase in the number of businesses opting to pass on transaction costs, with approximately 42% of Australian businesses assessing transaction fees in 2013.[8] The competition amongst the card brands in the wake of the changes has significantly reduced the interchange fees assessed to merchants.[9] Surcharges must not be more than the amount that it costs a merchant to accept a particular type of card for a given transaction.[10]


In June 2017, Visa and MasterCard agreed to drop their contractual prohibitions on surcharging in Canada as part of a settlement of a long-standing class action lawsuit. Canadian merchants may begin to apply credit card surcharges 18 months after court approval of the settlement.[11]

European Union

In March 2015, the European Parliament voted to cap interchange fees to 0.3% for credit cards and to 0.2% for debit cards[12] and subsequently issued, in November 2015, the Payment Services Directive (PSD2) prohibiting businesses from charging extra when consumers use credit cards or debit cards.[13]

United Kingdom

In the United Kingdom, the Consumer Rights (Payment Surcharges) Regulations 2012 limit payment surcharges with some exceptions. Payments for the supply of water, gas and electricity are regulated but payments for calls from public telephones are not regulated.[14]

Under the UK’s Consumer Rights Act, UK businesses are permitted to pass on the credit or debit card charges, but only in an amount that reflects their actual cost. However, the UK Parliament has incorporated the EU’s Payment Services Directive (PSD2) into UK law. Beginning in January 2018, it will be illegal for UK businesses to charge extra for credit or debit cards.[15]


The Federal Competition Commission has recently allowed payment schemes to ban surcharging in Switzerland through their standard contract terms.[16]

Reasons for surcharging

Countries including the United States, Australia, and Canada have sought to promote price competition among card brands to increase efficiency.[17] In the United States, consumer protection advocates have promoted for surcharging solutions as a mechanism to slow the rapidly increasing cost to businesses of card acceptance, including the 24% increase in interchange cost for Visa and Mastercard rewards cards since 2004.[18] The Boston Federal Reserve argues:

“Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, […] each card-using household receives $1,133 from cash users every year.”[19]

Whereas businesses that pay for the cost of card acceptance have no mechanism of exerting price pressure on the card brands, businesses that require their customers to pay the fees associated with their card create price competition, as the customers choosing the form of payment will prefer to use lower-cost cards. By creating the incentive for customers to choose lower-cost cards, surcharging reduces transaction costs overall. For example, industry experts have shown that, on a $1,000 transaction, motivating a customer to choose a debit card (to which no surcharge is applied) instead of a premium rewards credit card reduces the interchange cost of the transaction by up to $23.38.[20]

Misuse of surcharging

Some merchants impose surcharges to make additional profit instead of to cover official credit card company charges, in violation of consumer protections.[21] Additionally, many merchants seeking to reduce transaction costs have implemented non-compliant solutions that fail to meet price transparency and consumer friendliness standards imposed by the card brands’ contract requirements.[22]


  1. ^What is a Credit Card Surcharge?
  2. ^“Cash Discounts, Credit Surcharges and Free Speech”. 2017-01-10. Retrieved 2017-11-22.
  3. ^“Dana’s Railroad Supply v. Attorney General, No. 14-14426 (11th Cir. 2015)”. Justia Law. Retrieved 2017-11-03.
  4. ^“Calif. AG, Restaurant Debate High Court Ruling At 9th Circ. – Law360”. Retrieved 2017-11-03.
  5. ^CURIAM, PER. “ROWELL v. PETTIJOHN | 865 F.3d 237 (2017) | By… | 20170525118|”. Leagle. Retrieved 2017-11-03.
  6. ^“Surcharging Credit Cards–Q&A for Merchants” (PDF).
  7. ^“Merchant Surcharge Rules & Fees | Mastercard”. Retrieved 2017-11-03.
  8. ^“Commonwealth Consumer Affairs Advisory Council: Credit Card Surcharges”.
  9. ^“The Personal Credit Card Market in Australia: Pricing over the Past Decade” (PDF).
  10. ^“Questions & Answers on Card Payments Regulation”. Reserve Bank of Australia.
  11. ^“Merchants may soon ask customers to pay surcharge when using credit cards | Metro News”. Retrieved 2017-11-03.
  12. ^Commission welcomes European Parliament vote to cap interchange fees and improve competition for card-based payments
  13. ^“L_2015337EN.01003501.xml”. Retrieved 2017-11-03.
  14. ^
  15. ^Milligan, Brian (2017-07-19). “Q&A: How will the card surcharge ban work?”. BBC News. Retrieved 2017-11-03.
  16. ^Wettbewerbskommission,, p. 44
  17. ^“The Personal Credit Card Market in Australia: Pricing over the Past Decade” (PDF).
  18. ^Office, U.S. Government Accountability (2009-11-19). “Credit Cards: Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges” (GAO-10–45).
  19. ^“Who Gains and Who Loses from Credit Card Payments?” (PDF).
  20. ^“Brief Amicus Curiae for CardX, LLC in Support of Petitioners” (PDF).
  21. ^“Review of Card Payments Regulation: Regulation Impact Statement” (PDF).
  22. ^“I see that some companies offer a “cash discount” program. Is this compliant?”. CardX.

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library