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US organisations experience credit card surcharging differently based on their type, meaning they also have different compliance challenges and face different levels and types of potential regulatory intervention.
Credit card surcharging is a necessary tool for US businesses seeking to offset the cost of accepting credit card payments via the credit card networks.
Surcharging means passing processing fees on to customers, and is prevalent in both business-to-business (B2B) and business-to-consumer (B2C) transactions.
The processes for and concerns of B2B and B2C organisations vary, however, and as such loopholes have arisen in the rules governing the practice that can lead to issues and concerns for users in both camps.
“While the card networks provide guidelines for B2B surcharges, they are generally more ambiguous compared to B2C rules,” Stephen Aschettino, a partner at law firm Steptoe in New York, told Vixio.
“This ambiguity can provide opportunities for merchants to exploit loopholes or engage in practices that may not be in the best interests of their customers.”
Understanding surcharging
Surcharging covers the cost of processing card payments. In the US, surcharging is possible only on credit card transactions, as debit and prepaid cards are exempt under the Durbin Amendment of the Dodd-Frank Act of 2010.
Surcharges are generally either a small percentage of the overall cost — around 2 percent or 3 percent — or a set amount.
The rules are not established by any form of financial regulation, but are determined by the credit card companies themselves, in what is essentially an unregulated market.
This has led to questions about whether regulatory action would provide better security and firm up the practice, while removing some of the power from market leaders in the space.
Small retailers and restaurants can struggle to absorb the rising cost of credit card processing fees, but customers are naturally reluctant to see an increase on their bills.
B2B surcharging: efficiency and profit margins
For B2B organisations that tend to have high transaction volumes and often rely on credit card usage by customers within an increasingly automated payments environment, surcharging allows better management of costs.
Accepting credit cards allows faster payment settlement and guarantees funds, while not putting off customers by insisting on cash or debit as a means of payment, although the associated fees can significantly reduce the profit margin on smaller transactions.
However, surcharging in the B2B space can be complex. With so many different types of credit cards available in the US, each bearing its own processing rate depending on card type, merchant or usage, individual businesses must carefully manage surcharging to ensure compliance with differing rulesets.
The risk of over- or under-charging customers is high. This ambiguity means B2B businesses must be especially diligent in ensuring they comply or face potential penalties.
B2C surcharging: consumer expectations and relations
For B2C organisations, the decision of whether to surcharge is directly tied to customer relations.
Larger retailers hesitate to implement surcharges for fear of alienating customers, as these types of consumers generally do not appreciate seeing additional fees on their receipts purely because of payment choice.
“By and large, most retailers are not implementing surcharges,” said Dylan Jeon, senior director of government relations at the National Retail Federation, who implied that most large retailers use wire transfers for payments anyway.
He warned against surcharging: “It’s a tactic that you want to avoid if possible, because it’s not great for consumer relations and expectations.
“Nobody feels great about looking at a receipt and seeing an additional charge based on the method of payment, so our members are avoiding that as much as possible and absorbing those increased costs where they can.”
However, absorbing these rising costs is not feasible for smaller businesses such as local convenience stores and restaurants.
“For the merchants and restaurants that do implement surcharges, mostly on main street, mom-and-pop leve l… swipe fees have just become so significantly large and unabsorbable that there is little choice but to pass these fees onto customers via surcharges,” Jeon added.
Compliance challenges and legal landscape
One of the greatest challenges for B2B merchants is ensuring compliance with the web of state laws, federal regulations and credit card network rules that, as Vixio has reported, govern surcharging.
Although surcharging is allowed in many states, businesses are unable to profit from the charge and can only pass along the exact cost of processing fees to consumers.
This means that being fully compliant can be difficult, especially when card rates not only vary but change frequently.
Market leaders Visa and Mastercard tend to release new surcharging rates annually, and failure to comply with these complex regulations can result in severe financial penalties.
“Almost none of this is really regulatory, it's more ‘what do Visa, Mastercard impose’,” Doug Kantor, general counsel for the National Association of Convenience Stores (NACS), explained.
“They like to think of themselves as lawmakers, but they're not, and a lot of people in the industry, just sort of because they're so powerful, talk about it that way.”
The legal framework surrounding credit card surcharging in the US remains a patchwork of state and federal regulations.
As of 2024, only four states — Connecticut, Maine, Massachusetts and California — still ban surcharging, while other states such as New York have introduced restrictions that mandate full disclosure of surcharge fees at the point of sale.
The politics in each state are unique, but the longer-term trend is more states lifting bans on surcharging.
Merchants operating in multiple states face particular challenges navigating this landscape, with surcharging rules varying widely between jurisdictions.
“The patchwork of regulations is certainly confusing, especially for vendors operating across multiple states,” added Kantor.
States such as Illinois and New York have imposed restrictions that do not ban surcharging outright, but require merchants to disclose surcharge amounts in a transparent manner.
Non-compliance can result in significant financial penalties, which can disproportionately affect small businesses with lower margins.
Credit card networks and calls for reform
In the absence of consistent state or federal regulation, credit card networks, most notably Visa and Mastercard, have stepped in to create their own surcharging rules that aim to provide transparency and uniformity.
These rules stipulate that merchants must notify the networks of intents to impose surcharges and ensure that the amount does not exceed the cost of processing the credit card payment.
“Being realistic here, the average customer doesn’t always understand and can get frustrated with credit card surcharging that ends up at the bottom of the receipt without having any prior notice,” said Brennan Duckett, director of technology and innovation policy at the National Restaurant Association.
Visa and Mastercard’s efforts aim to mitigate this by requiring clear disclosure to customers before the surcharge is applied.
Compliance is mandatory for businesses using the network, and Visa and Mastercard have imposed hefty fines for violations.
Visa, for example, has reportedly issued fines as high as $1m for non-compliance with surcharge regulations.
“But the fees have gone up by so much that, frankly, there's a level of desperation where some businesses are pretty close to breaking the rules and saying ‘well, let them come after me if they want to come after me',” said Kantor.
Despite these efforts, critics argue that the root of the issue lies in the control that Visa and Mastercard exert over the payment industry.
“This is only a band-aid for a much larger, systemic problem, which is Visa and Mastercard controlling the entire marketplace and price-fixing,” Duckett added.
The future of surcharging
As credit card processing fees grow, surcharging remains a key tool for managing costs for all parties.
The legal and regulatory landscape remains complex and confusing, particularly for businesses that operate in multiple states.
Aspects of the proposed Credit Card Competition Act (CCCA), which is generally aimed at increasing competition among payment networks, aim to reduce the need for surcharging by lowering credit card processing fees.
Right now, federal action on surcharging remains unlikely, despite the issue comprising part of the reasoning behind the US Department of Justice’s motion on Visa.
It is a long-term goal of merchants in the US to call for systemic changes and address the imposition of fees that are unlikely to reduce, yet not everyone is convinced regulation is necessary.
“I would be reluctant to suggest, however, that imposing regulations is the answer given the payments industry’s long and successful track record of self-governance,” said Aschettino.
Europe has regulated this space aggressively, but there has been little action in the US.
This shows the power Visa and Mastercard have had to introduce a duopoly structure that, according to critics, has allowed the pair to essentially head off oversight and regulation for the most part.
As Kantor said: “It is most likely that we’re going to continue to have a hodgepodge of some states trying to ban it or restrict it and some states opening it up.”
For businesses, both B2B and B2C, navigating this patchwork of rules will require careful attention to both state laws and network regulations.
