Is it Illegal to Charge Your More for Using Your Card?
The headline above sounds like a simple question but as with many financial transactions, there are multiple laws and agreements that regular whether a merchant can charge more for use of a credit card for payment.
Both MasterCard and Visa agreements prohibit this though some merchants have tried to get around the terms. Merchant concerns are often focused on the small purchases that are often found in drug stores, convenience stores or specialty food venues.
When you use your credit card you are concerned only with the ease of use and the amount you will pay for the privilege of charging your purchase.
You know the $50 shirt will cost $50 and no more as long as you pay off the purchase during the three week grace period of your credit terms.
You also know if you pay off the $50 buy over 2-3 months you will pay an additional amount in interest fees.
What you may not realize is the cost to merchants when you charge your purchase. When you see a sign limited credit card use to purchases of $5 or more or a sign about surcharges if you use a credit card, you may wonder whether your merchant can charge you more when you buy something?
If you buy a candy bar for $1.50 at a convenience store the store owner gets $1.50 if you pay with cash. If you pay with a credit card, the owner may receive only $1.22 and pay twenty-eight cents to process the transaction.
On big items like major appliances or plane tickets, the merchant may pay as much as 3% of the purchase price as a fee for the credit card transaction. Clearly, fees have an impact on the bottom line of profit.
For small businesses such as convenience stores, the average purchase may be a small dollar amount and the result is a processing fee that may be as much as 18% of the purchase price.
One financial writer estimated if everyone who shopped at Best Buy stores paid with a credit card, the company would be paying about one billion in fees to credit card companies in a year.
Can a Merchant Charge More for Use of Credit Card - Legally?
As mentioned above, MasterCard and Visa prohibit merchants from adding a surcharge to credit card customers. American Express disallows any extra charges unless card holders have specifically approve them.
Discover allows a surcharge to be added but limits the amount with terms that make it impossible to implement for most merchants.
MasterCard and Visa just say "no" to charging more for use of your credit cards. American Express and Discover say "maybe" but then impose restrictions that change the answer effectively to "no, they can't".
If You Can't Add - Subtract
If a merchant wants to pass on credit processing fees to his customers he must create a dual pricing platform. This is often the choice for gas companies who offer a "discount" for customers who pay with cash and claim credit card users are paying the regular price.
Retail merchants outside the fuel industry have not adopted this model for the most part. You will find many convenience stores and Mom and Pop stores with signs on the cash register that say credit cards can be used only for purchases above a certain dollar amount.
However, that is not enforceable and if you insist on making a $2 purchase with a charge card you will be allowed to do that. Refusing to accept a credit card for a low priced item could cause the store to lose its ability to process credit cards if reported.
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In most cases, charging more for use of your credit cards is not permitted. If the merchant wants customers to pay for transaction fees he must raise his prices accordingly.
The merchant can then provide a cash discount price to those customers who pay with cash. Most major retail chains realize doing this would give the appearance of higher prices to consumers who do not understand processing fees. In a highly competitive marketplace, higher pricing is not what a store wants to be known for.