What do I Need to Know about Credit Card Merchant Fees?

Q: Why do retailers often charge an extra fee for customers paying with a credit card?

A: With cash becoming increasingly obsolete, more people are choosing to make their purchases with a credit card than ever. Credit cards are super-convenient and easy to use. There’s no need to worry about having the cash you need on hand, or even having the funds to cover the purchase, in your checking account at the moment of the transaction. 

Unfortunately, though, using a credit card is not all fun and games. In addition to hefty interest charges and a debt trap that can be hard to escape, merchants often tack on an extra surcharge, also known as a merchant fee or a swipe fee, for customers paying with credit. In recent years, with prices rising everywhere, and more people paying with credit cards, these fees are being felt more keenly by consumers across the financial spectrum. 

Here’s what you need to know about the credit card merchant surcharge so you can make an informed decision about how to pay for your purchases.

What is the merchant surcharge?

The credit card merchant surcharge is an extra fee that retailers charge customers using a credit card to pay for their purchases. The fee is generally a percentage of the cost of the purchase and can range from 1-4% of the total bill. Merchants will bill customers for these surcharges to help them cover the fees that the credit card issuers charge them for the transaction. Some will pass the entire cost on to the customer, while others will only pass a small portion.

Credit card merchant fees are legal in most states. However, several states, including Connecticut, Maine, Massachusetts and Oklahoma, prohibit all surcharges on credit card purchases. Some states allow merchants to charge swipe fees, but impose restrictions, such as the 2% maximum in Colorado. In addition, Visa has capped its merchant fees at 3%, while other credit card issuers allow their merchants to charge up to 4% of the purchase price. It’s a good idea to familiarize yourself with your state’s swipe fee laws so you aren’t slapped with an illegal surcharge.

While merchant surcharges are legally protected under law, according to a 2017 U.S. Supreme Court ruling(link is external), there are restrictions on how these fees can be applied. Merchants charging a credit card swipe fee are required to:

  • Clearly disclose the fact that there is a surcharge prior to the transaction.
  • Display the credit card surcharge on the receipt.
  • Keep surcharges capped at 4% of the transaction, or the fee the merchant pays to the credit card companies, whichever is less.

In addition, if the retailer chooses to impose a minimum purchase requirement for all credit card purchases, this amount cannot exceed $10. The minimum also cannot be higher than the amount set by other merchants using the same credit card network.

It’s also important to note that credit card surcharges are legally protected, but debit card surcharges are not. You should never be charged a fee for paying with a debit card, even if you choose “credit” on the payment terminal when completing the transaction.

Finally, it’s worth noting that some retailers will choose to charge a “convenience fee,” which is an optional flat fee that merchants charge under specific circumstances. For example, this can be applied to items purchased online or pre-ordered before they hit the store shelves. This fee is regulated by the credit card issuer and some do not allow it to be charged at all. 

How can I avoid the credit card merchant fee?

There are several ways that you, as a consumer, can avoid the credit card merchant fee. First, you can choose to pay for your purchases with cash or by debit card. In addition to skipping the swipe fee, you’ll also be at an advantage when it comes to budgeting for your monthly expenses as cash and debit card usage are always limited. You’ll also finish paying for the purchase on the spot, as opposed to paying for it at the end of the month, or even later, with possible interest charges tacked on, too.

Of course, you can also choose to take your business to retailers that do not charge a merchant fee. Signage for swipe fees is a legal requirement, so you can easily see if the store you’re shopping at charges this fee to determine whether you still want to shop there.

Credit card merchant fees help retailers recoup some of the cost of processing credit card payments, but they can be a pain for the consumer. Use this guide to learn about these fees and how you can avoid them. 


Learn More
What are credit card surcharges and where are they legal? - Fortune.com
Are in Compliance to Avoid Fines, Fees and Litigation - AFS Law
Is it Legal to Charge Customers a Credit Card Processing Fee? - Lending Tree
Credit Card Surcharge Laws by State Explained - LawPay