Dear Liz: Lately, I’ve encountered businesses charging a fee to use a credit card either online or at the point of service. This practice seems to be steadily increasing, as I have been hit with fees to use my credit card at my car repair shop, gym and restaurants. Gas stations have been doing this for years. The IRS also has a fee to pay taxes online with a credit card. Is there a federal or state law that prohibits this? Is it the banks that are reaping these fees from the consumers who use their credit cards to pay for goods and services? The fees are 1.5% to 3% of the total amount paid, but it is starting to add up.
Answer: Federal law doesn’t prohibit credit card surcharges. Some states do, including California, but California’s law was found to be unconstitutional and so is not enforced.
(Visa and MasterCard used to ban surcharges in their merchant agreements, but the card networks dropped that restriction in 2013 as part of a lawsuit settlement.)
These fees aren’t a profit grab by the banks but a way for merchants to recoup the costs of accepting credit cards. Merchants have to pay interchange fees to the bank that issued the card as well as payments to the credit card network and the company processing the transaction. Those costs typically equal 1.5% to 3.5% of the transaction.
Federal law does prohibit surcharges on cash, prepaid and debit card transactions, however. If you want to avoid the fees, you can opt for one of those methods or look for businesses that don’t add such surcharges.
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