As operational costs continue to rise, many practice owners are shifting the burden of credit card processing fees onto their patients. While this approach can help offset expenses, it comes with legal complexities that can’t be ignored. Navigating the state and federal regulations surrounding credit card surcharges is crucial, as non-compliance can lead to significant penalties.

Each  state has different regulations, and what is allowed in one jurisdiction may be prohibited in another. Additionally, the rules around disclosure requirements can be confusing, with some states mandating explicit notice to patients at the point of sale, while others may require it on receipts or billing statements. This makes it challenging for practice owners to adopt a one-size-fits-all approach. Even if the legal aspects are managed, there’s also the concern of how patients perceive these fees, which could impact patient satisfaction and loyalty. Balancing legal compliance with patient experience is a delicate matter, and it’s not always easy to find a solution that adequately addresses both.

Here’s what every business needs to know to stay on the right side of the law.

Federal Law: The Durbin Amendment and Credit Card Surcharges

The Durbin Amendment technically known as Regulation II, part of 15 U.S. C. § 1693o-2, is a law that was passed in 2010, as part of the Dodd-Frank Act regulates the interchange fees on debit card transactions but does not govern credit card surcharges directly. 1

It’s important to note that these rules only apply to debit card transactions where the card is issued by banks with over $10 billion in assets. That means smaller issuers are not required to limit their fees in the same way as larger ones. 2

The practice of surcharging was largely outlawed for several decades until 2013 when a class action lawsuit permitted merchants in several U.S. states to implement surcharges in their businesses. 3 This fee helps cover the costs of credit card processing, which typically ranges from 1.5% to 3.5% of the transaction amount.

While federal law allows the surcharge, there are important guidelines to follow:

• Disclosure: Merchants must disclose the surcharge before the transaction occurs. This can be done via signage at the point of sale or online notifications.
• Limits to Fees: The surcharge cannot exceed the amount the business pays to process the credit card. Typically, the cap is around 4%.
• No Debit or Prepaid Card Fees: Surcharges can only be applied to credit card transactions, not debit or prepaid cards, even if processed similarly.

State Laws: Varied Regulations Across the U.S.

State regulations regarding credit card surcharges vary significantly. As of 2024, some states still prohibit businesses from adding surcharges, while others allow it with conditions. 4

Here’s a breakdown:

• Prohibited States: In states like Connecticut and Massachusetts, it is illegal for businesses to charge customers an extra fee for using a credit card.
• Permitted States with Restrictions: States like California and New York once had laws banning surcharges, but they’ve since relaxed those regulations with specific conditions. For example, businesses may charge a credit card fee if it is disclosed clearly to the consumer.
• Permitted States: Many states, including Texas and Florida, fully allow surcharges if businesses follow federal guidelines regarding disclosure and fee limits.

Staying informed about local and state laws is essential, as they can change frequently, and regulations differ from state to state. If your business operates in multiple states, you may need to adapt your policy to ensure compliance in each location.

Best Practices for Implementing a Credit Card Surcharge

If you decide to implement a credit card surcharge, here are some best practices to help you stay compliant and maintain customer satisfaction:

• Clear Communication: Transparency is key. Transparency is key. Ensure that the surcharge is communicated, whether in person or online. Let patients know that a fee will apply if they use a credit card.
• Consider Alternatives: Some businesses offer customers the option to pay with cash or with debit cards to avoid a surcharge. This can encourage lower-cost payment methods and avoid deterring customers from sensitivity to extra fees.
• Customer Education: Educate your patients about why you are charging the fee. Some may not understand that it’s to cover processing costs, which can help maintain goodwill and trust.

Exceptions: Convenience Fees

It’s important to distinguish between surcharges and convenience fees. A convenience fee is charged for offering a non-standard method of payment (like accepting payments online or over the phone, when in-person payments are standard). Convenience fees are often subject to different rules and may be more tightly regulated by card networks like Visa and Mastercard.

Payment Network Rules

In addition to state and federal regulations, credit card networks like Visa, Mastercard, Discover, and American Express have their own rules regarding surcharges:

• Merchants must notify Visa and Mastercard at least 30 days before beginning to impose surcharges.
• The surcharge must be included on the customer’s receipt.
• Surcharges cannot exceed the merchant’s actual processing fee or a cap of 4%, whichever is lower.

Stay Up to Date

Since credit card surcharges are a legally evolving topic, staying informed about changes to both federal and state regulations is vital. Working with a merchant advocate can help ensure you follow the correct protocols.

A merchant advocate plays a crucial role in helping businesses keep credit card fees down by acting as an expert intermediary between the business and payment processors. They have in-depth knowledge of the credit card processing industry, allowing them to negotiate better rates, identify hidden or unnecessary fees, and ensure that businesses are not overcharged. Merchant advocates also monitor transaction activity and industry changes, ensuring that the business is using the most cost-effective and transparent processing options available. With their expertise, businesses can save significantly on fees, avoid costly mistakes, and focus on growth while maintaining compliance with ever-changing regulations.

I can confidently say that partnering with a merchant advocate has saved my clients over $10k annually by identifying and eliminating unnecessary fees, while also negotiating lower transaction rates. Additionally, they’ve been invaluable in explaining the relevant federal and state laws when implementing a processing fee.

Should you incorporate a credit card surcharge?

When considering whether to incorporate a credit card surcharge into your best practices, it’s important to weigh both the financial and customer service impacts. On one hand, adding a surcharge can help offset the rising costs of credit card processing, which can significantly affect your bottom line over time. However, this practice can also create friction with patients, who may view the extra fee as an inconvenience or even unfair. Transparency and communication are key—informing customers about the surcharge upfront can mitigate negative reactions. Additionally, it’s crucial to ensure compliance with state and federal regulations to avoid potential legal issues. Ultimately, whether to implement a surcharge should depend on your business model, customer preferences, and overall financial strategy.

By understanding the legal landscape and maintaining clear communication with your customers, you can implement a compliant credit card surcharge policy that helps offset costs while maintaining strong patient relationships.

Citations:

1. https://www.freshbooks.com/hub/other/durbin-amendment?srsltid=AfmBOorKZvukEoHcxbZz4_cowR25q4DPs8X58X4VGrl2uk7VcBCXoP34
2. https://www.checkout.com/blog/revisiting-the-durbin-amendment
3. https://www.lawpay.com/about/blog/credit-card-surcharge-rules/
4. https://www.lawpay.com/about/blog/credit-card-surcharge-rules/