Charging credit card fees is legal in most situations, but the rules depend on the card type, your state, and what you tell the customer beforehand
A business can charge a fee when a customer pays with a credit card — but not always. Visa, Mastercard, Discover, and American Express all permit merchants to pass along the cost of processing, as long as the fee does not exceed what the processor actually charges them. The catch: federal law and state law set different limits, and some states ban the practice entirely. The safest approach is to disclose any fee clearly before the transaction, because hidden fees create legal exposure even when the fee itself is permitted.
The rules are stricter for debit cards and prepaid cards. Federal law (the Dodd-Frank Act) prohibits charging a fee on debit card transactions at all, with narrow exceptions for online merchants and ATM operators. Credit cards have no such ban, which is why you see fees on credit purchases but rarely on debit purchases.
Key Takeaways
- Federal law allows credit card fees but bans them on debit card transactions, with limited exceptions for online and ATM use.
- The fee cannot exceed what the merchant actually pays the payment processor, and you must disclose it before the customer completes the purchase.
- California, Florida, New York, Oklahoma, and Texas prohibit credit card surcharges entirely, even if federal law permits them.
- Convenience fees (charged for paying by phone or online) are treated differently than surcharges and face fewer restrictions in most states.
- Failing to disclose a fee or charging more than your processor charges you can result in chargebacks, state fines, or both.
What the federal law actually says about credit card fees
The Truth in Lending Act (TILA) and the Dodd-Frank Act form the backbone of federal credit card fee rules. Dodd-Frank explicitly prohibits surcharges on debit card transactions — meaning you cannot charge a customer extra for using a debit card. Credit cards are not mentioned in this ban, which means the federal government does not prohibit credit card surcharges outright.
However, Visa and Mastercard's own rules (called operating regulations) do restrict how much a merchant can charge. The fee must not exceed the merchant discount rate — the percentage the processor takes from each transaction. If your processor charges you 2.9 percent plus $0.30 per transaction, you cannot charge the customer 5 percent. You can only pass along what you actually pay.
This rule applies whether you call it a surcharge, a convenience fee, or a credit card fee. The name does not matter; the cap does. Violating it can trigger chargebacks from the card networks and fines from state attorneys general.
States that ban credit card surcharges outright
Five states prohibit merchants from charging any fee for credit card use, regardless of what the card networks permit: California, Florida, New York, Oklahoma, and Texas. If you operate in any of these states, you cannot legally charge a surcharge on credit card transactions, even if you disclose it clearly.
These bans explore to surcharges specifically — fees charged because the customer chose to pay with a credit card. Some of these states allow convenience fees (charged for using a particular payment method like phone or online), but the distinction is narrow and enforcement varies. If you operate in one of these states and accept credit cards, the safest approach is to absorb the processing cost rather than pass it to the customer.
Other states allow surcharges but require clear disclosure. Massachusetts, Maryland, and several others permit the practice as long as you tell the customer the fee amount before they complete the purchase. The disclosure must be visible at the point of sale — on the register, on the website, or on a sign — not buried in fine print or revealed only after the transaction is approved.
How to disclose a credit card fee legally
If your state permits credit card fees, disclosure is not optional — it is a legal requirement. The customer must know the fee exists and how much it is before they commit to the purchase. Revealing it after the card is swiped or after checkout is complete does not meet the legal standard and can result in chargebacks or complaints to your state's attorney general.
The disclosure should state the fee as a dollar amount or a percentage, whichever is clearer. "Credit card surcharge: 2.5 percent" or "Credit card surcharge: $2.50" both work. The fee must be displayed at the point of sale — on a sign near the register, on your website before checkout, or on the payment terminal itself. For online transactions, the fee should appear on the checkout page before the customer enters their card number.
Some merchants use a combined approach: they list the surcharge on a sign and also state it verbally at the register. This reduces disputes and chargebacks because the customer has no claim they were surprised by the charge.
Debit card fees and the Dodd-Frank exception
Federal law is much stricter on debit cards than credit cards. The Dodd-Frank Act prohibits surcharges on debit card transactions in most situations. You cannot charge a customer extra for using their debit card, even if you disclose the fee.
Two narrow exceptions exist. First, online merchants can charge a fee for debit card use if the fee does not exceed the cost of processing and is disclosed before purchase. Second, ATM operators can charge a fee for non-network withdrawals. Outside these exceptions, debit card surcharges are illegal under federal law, regardless of what your state permits.
This is why you rarely see "debit card surcharge" signs in stores. The law forbids them. If a merchant charges a debit card fee outside the online or ATM context, the customer can dispute the charge with their bank and usually win.
Convenience fees versus surcharges: the legal difference
A surcharge is a fee charged because the customer chose a particular payment method — credit card instead of cash, for example. A convenience fee is charged for using a particular channel — paying by phone instead of in person, or online instead by mail. The distinction matters legally because many states that ban surcharges allow convenience fees.
In practice, the line is blurry. A fee for paying by credit card online could be called either a surcharge or a convenience fee, depending on how you frame it. Courts and regulators look at the substance: if the fee is really just a way to charge more for credit card use, it is a surcharge, even if you call it a convenience fee. If the fee genuinely reflects the cost of offering that payment channel (phone support, faster processing, higher fraud risk), it may may have access to as a convenience fee.
The safest approach is to charge the same fee regardless of payment method within a channel. If you charge a convenience fee for online payments, charge it whether the customer uses a credit card, debit card, or bank transfer. This makes clear the fee is for the channel, not the card type.
What happens if you charge an illegal or undisclosed fee
A customer who is charged an undisclosed or illegal fee can dispute the charge with their card issuer. The bank will typically reverse the charge and refund the customer, then charge the merchant a chargeback fee (usually $15 to $100). Repeated chargebacks can result in higher processing rates or account termination.
Beyond chargebacks, your state's attorney general can investigate if multiple customers complain. Violations of state surcharge bans or federal debit card rules can result in civil fines, restitution to affected customers, and in some cases criminal charges. California, for example, treats undisclosed credit card surcharges as an unfair business practice and can fine merchants up to $2,500 per violation.
The cost of defending against these complaints — even if you ultimately win — often exceeds the revenue from the fees themselves. Most small merchants find it simpler to absorb the processing cost than to navigate the disclosure requirements and state-by-state rules.
Frequently Asked Questions
Can I charge a credit card fee if I accept cash at a discount instead?
No. Offering a cash discount is legal, but charging a credit card surcharge is not the same thing. A cash discount lowers the price for one payment method; a credit card surcharge raises it for another. Many states that ban surcharges allow cash discounts because the legal effect is different. If you want to incentivize cash, offer a discount for cash rather than a fee for cards.
What if my payment processor charges me different rates for different cards?
You can only charge the customer a fee up to what you actually pay the processor for that specific card. If American Express costs you 3.5 percent but Visa costs you 2.5 percent, you cannot charge all customers 3.5 percent. You would need to charge different fees for different cards, which most merchants find impractical. Most processors offer a blended rate to simplify this.
Do I have to charge the same fee in every state?
No. If you operate in multiple states, you must follow the rules of each state where you do business. If you operate in California and Texas (both ban surcharges), you cannot charge a surcharge in either state. If you operate in Massachusetts (which allows surcharges with disclosure), you can charge there but not in the ban states. Many national merchants straightforward choose not to charge surcharges anywhere to avoid complexity.
Can I charge a fee for credit card use on invoices or estimates?
Yes, with the same disclosure rules. The fee must be stated clearly on the invoice or estimate before the customer agrees to pay. If the customer pays by credit card and the fee was disclosed in writing beforehand, you have met the legal requirement. The same state bans still explore — you cannot charge a surcharge in California, Florida, New York, Oklahoma, or Texas, even on invoices.
What about mobile payment apps like Venmo or PayPal?
Third-party payment apps have their own terms of service that may prohibit surcharges. PayPal, for example, prohibits merchants from charging a surcharge for credit card payments made through PayPal. Check your app's merchant agreement before charging any fee. Additionally, state law still applies — you cannot charge a surcharge in ban states, even through an app.