How do U.S. Surcharges and Service Fees Work?

( Published Monday, October 09, 2017)


Paying online is a far more convenient and environmentally friendly method of settling customer accounts around the world, but it comes at a price. As a merchant, you know that your customers love the convenience of paying online—and that processing credit cards can be surprisingly expensive. How do you reconcile the cost to your business with the ease of paying with a credit card?

You're considering adding a surcharge or a service fee to your transactions to help you recoup your out of pocket expenses, but you're not sure what's permitted in your country. After all, the rules in the U.S. might not apply in Canada, and vice versa. For now, we're going to focus on the different roles of surcharges and service fees in the U.S. What's the difference between the two, what do they mean, and why are they necessary? 

What's a Surcharge? 

First things first: what's a surcharge, anyway? Basically, a surcharge is a charge that can be applied anytime a purchase is made with a credit card. It's meant to help the merchant recoup the cost of allowing customers to pay with a credit card, but that doesn't mean that merchants can charge whatever they want for the privilege of paying with plastic. 

Theses fees are typically a percentage of the sale. Rather than charging a flat surcharge fee, the merchant would charge, say, 3% of the total purchase. 

Surcharges are legal at the federal level in the U.S., but not all states are on board with them. In addition to Puerto Rico, there are ten states in which surcharges are not legal

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

In all other states, surcharges are legal, but they're seriously restricted. Some states have passed statutes that permit sellers to offer discounts to customers who pay with cash rather than credit cards to encourage consumers to skip the fee-heavy credit card transaction. 

Surcharges can ONLY be applied to credit card payments, not debit or prepaid card payments, and the maximum amount that the customer can be charged is 4%. 

What's a Service Fee? 

A service fee basically charges users for the convenience of being able to pay with a credit card rather than with the typical method of payment. If, for instance, an HOA has an option to pay online in addition to mailing a check, they can charge a service fee in the US.

However, a business that conducts ecommerce only cannot charge a service fee— paying by credit card is their primary method of payment, thus the merchant isn't going out of their way to offer the customer a more convenient payment method. 

Unlike surcharges, this is typically a pre-set amount— say, for example, an American merchant charges a $2.50  service fee for every credit card transaction online.  The number is the same regardless of the amount of the transaction. Additionally, the customer must be notified that the fee's being appended to their payment prior to finalization. The customer must be given the opportunity to cancel the payment if they would prefer to pay in a different manner to avoid the fee.  

Confused? That's okay. Understanding the complexities of online credit card payments, including over the phone credit card payments and PCI compliance challenges, in the U.S. is difficult. That's where Ivrnet comes into the picture. We can help you overcome the challenges related to online payment, ensuring that you're compliant with the law (whether you're in the U.S. or Canada) and keeping your customers' sensitive data secure. Contact us today to learn more about SafePay