If you’re a business owner, you know credit card processing fees can take a significant bite out of your profits. These fees typically range from 1.5% to 3.5% per transaction, making them one of the largest operational expenses after payroll. As more customers prefer plastic over cash, many businesses wonder: is it legal to pass these costs along to customers?
The short answer is yes, but with important limitations. Let’s explore the legal landscape, your options, and what you need to know to stay compliant.
Understanding the Legal Status
Passing credit card processing costs to consumers is legal through several methods, with surcharging now permitted in 45 states as of October 2025, while alternative approaches like cash discounting remain legal nationwide.
The legal framework evolved significantly after a landmark Supreme Court case. In 2017, Expressions Hair Design v. Schneiderman challenged New York’s ban on credit card surcharges. The Supreme Court ruled 8-0 that surcharge bans regulate speech rather than conduct, which opened the door for many states to revise their laws.
Today, the regulatory environment varies by location:
States Where Surcharging is Prohibited:
- California
- Connecticut
- Maine
- Massachusetts
- Puerto Rico
States Where Surcharging is Legal: All other U.S. states and territories, including Oklahoma which joined in November 2025.
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Three Legal Methods to Pass Credit Card Fees to Customers
Method 1: Credit Card Surcharging
This involves adding a percentage-based fee specifically when customers pay with credit cards.
Key Requirements:
- Maximum fee cannot exceed 4% or your actual processing cost, whichever is lower (Visa limits to 3%)
- You must clearly disclose the surcharge before the transaction completes
- The fee must appear as a separate line item on receipts
- You need to notify card networks at least 30 days before implementing surcharges
- Surcharges can only apply to credit cards, never debit cards or prepaid cards
Advantages: Direct cost recovery that’s transparent to customers
Disadvantages: Research shows 71% of customers may avoid merchants who add surcharges, and 64.5% would consider stopping credit card use if surcharges were added
Method 2: Dual Pricing (Cash Discounting)
Rather than adding fees for card payments, you display two prices: a standard price for card payments and a discounted price for cash.
Key Requirements:
- Legal in all 50 states
- Both prices must be clearly displayed
- Signage must be visible at the point of sale
- Can apply to both credit and debit card transactions
Advantages:
- Frames the difference positively as a “cash discount” rather than a penalty
- Avoids negative customer perception associated with surcharges
- No state-specific restrictions to navigate
Disadvantages: Requires careful pricing strategy and clear signage throughout your business
Method 3: Convenience Fees
These are fees charged for alternative payment channels that provide extra convenience.
Key Requirements:
- Typically limited to non-standard payment channels (phone, online payments)
- Cannot be charged for card-present transactions
- Must be a flat fee, not a percentage
- Usually ranges between 2-3% of the purchase price
Advantages: Acceptable for transactions outside your normal payment channels
Disadvantages: Limited application compared to other methods
Compliance Checklist: What You Must Do
Regardless of which method you choose, staying compliant requires attention to three regulatory layers:
1. Card Network Rules Each major card network (Visa, Mastercard, American Express, Discover) has specific requirements you must follow, including notification procedures and fee limits.
2. State Laws Card network rules update twice yearly in April and October, while state laws change frequently. Regular compliance reviews are essential.
3. Clear Disclosure Transparency is non-negotiable. Customers must know about any additional fees before completing their purchase. This means:
- Visible signage at entry points and checkout areas
- Clear itemization on receipts
- Online disclosure before payment submission
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The Bottom Line: Making the Right Choice
While passing credit card fees to customers is legal in most situations, the best approach depends on your specific circumstances:
- For businesses in states where surcharging is prohibited: Dual pricing is your only option
- For businesses concerned about customer perception: Dual pricing tends to be better received than surcharges
- For businesses seeking simplicity: Dual pricing is legal everywhere and requires less complex compliance monitoring
Remember that although these strategies are legal, they come with reputational risks. Many customers view additional fees negatively, which could impact customer loyalty and repeat business. Before implementing any fee-passing strategy, consider whether the cost savings outweigh potential customer dissatisfaction.
The credit card fee landscape continues evolving. What’s legal today may change tomorrow, so staying informed about both federal regulations and your state’s specific laws is crucial for long-term compliance and business success.