After major card networks started allowing surcharges of up to 4 percent in 2013 as part of a legal settlement, big retail chains said they wouldn't annoy customers by imposing the fee - and they haven't.
But some small businesses are slapping surcharges on credit cards - even in states that prohibit such charges, state complaint records show.
"It's generally a small merchant - occasionally they'll decide they're tired of paying the high fees" charged by card networks, said Will Lund, Maine Consumer Credit Commissioner.
Data on the frequency of credit card surcharges are hard to come by. But a handful of states have laws that restrict surcharges, and CreditCards.com obtained the complaints data from those state governments. The results: Since January of 2013, consumers lodged more than 700 complaints in four states that restrict surcharges; Maine, Texas, Florida and Massachusetts.
The recorded complaints probably represent a small fraction of surcharges that go unreported, or even unnoticed. In most states, surcharges are permitted under state law, although card networks set rules on how they can be imposed.
To see what's happening with surcharges, CreditCards.com obtained statistics on complaints in the four states where complaint records are publicly available, interviewed state consumer protection officials, and asked consumers for their stories about run-ins with surcharges.
We also invited consumers to tell us about their stories. Consumers who responded to an online questionnaire described surcharges of 25 cents to $3 at cash registers all over the country, including a doughnut shop in Nevada, a food truck in Delaware, a hair salon in New Jersey and an independent eatery in upstate New York. Of 10 responses that included cost information, the average surcharge was 6 percent of the purchase - well in excess of the allowed 4 percent.
One finding of the research is that surcharges can be easy to overlook. At a convenience store in Mountain View, California, Robert Pollak at first missed a sign on the register stating that 75 cents would be added to credit card purchases under $7. Federal law permits retailers to set a minimum card purchase of up to $10, but doesn't allow them to charge extra for smaller purchases.
"The sign was small, I didn't see it," Pollack said. He only noticed the extra when he checked his receipt. "The store didn't say anything (in explanation)," he said. "It's their policy and that's it - take it or leave it."
While the amounts involved are small, they add up - particularly in comparison to rewards for using a credit card. Cash-back cards usually pay 1.5 percent to 2 percent on purchases overall, with a typical maximum of 5 percent on certain categories. The 6 percent average surcharge that consumers reported facing would more than wipe out their rewards - and some card users got hit for more than that. Visa and MasterCard cap surcharges at 4 percent in states where they are permitted at all.
Darryl Banks was using his Visa to buy ice cream at a Baskin-Robbins in Shoreline, Washington, when he was surprised by a 17 percent surcharge. "Upon presenting my card I was informed by the cashier of the $0.50 fee for using a card," he said. "For a $3 charge, that was pretty outrageous."
Costs to merchants
Businesses have a strong incentive to recover their credit card transaction costs. In their anti-trust case against card networks, retailers argued that Visa and MasterCard transaction fees, typically 1.5 to 3 percent of transactions, cost them $30 billion a year. The cost winds up in the prices that consumers pay, retailers say.
Alan Carlson, owner of Italian Colors restaurant in Oakland, California, estimates that card transactions cost his business $5,000 to $6,000 a year.
"I agreed to pay 3.75 percent for one (American Express) card, but I have to accept all of them," the owner-chef said. That includes elite cards that cost more than 5 percent per transaction. "It's great they (cardholders) are getting all these concierge services," Carlson said, "but small businesses are paying for it."
Carlson sued American Express over the fees and requirements to accept high-fee cards. The case eventually wound up before the Supreme Court, which sided with the credit card company. But Carlson won a separate court challenge against California's anti-surcharge law in 2015. The state attorney general's office said it has halted enforcement of the law pending an appeal.
The surcharges are occurring amid a cloud of confusion over paying with plastic. In California, Florida and New York, state laws that forbid surcharges have been challenged in court, and the legal battles continue. New York's anti-surcharge law was at first struck down in federal court in 2013, then upheld on appeal in 2015. In Florida, a federal district court upheld the state surcharge law, but was reversed by a higher court. The conflicting decisions suggest that it will be up to the Supreme Court to settle the legality of surcharge bans.
Merchants aren't the only ones who are unclear on the ins and outs of surcharging, however. State complaint records show that consumers are running into fees they think are outlawed - but aren't.
Complaint records in Texas, for example, show that gas stations are a frequent target of consumers' gripes. Consumers see signs on the roadside displaying a cash price, then a different, higher price for card use is displayed at the pump. Consumers feel tricked, but the higher price is permitted if signs state the difference correctly, the state's consumer credit regulator said, citing the cash-discount provisions of the Truth in Lending Act.
Apartment complexes also appear frequently in state complaint records about surcharges. Apartments often charge a "convenience fee" for paying rent with plastic, which is permitted under specific circumstances.
In Maine, "one gray area is 'processing fees,' such as fees assessed by a ticket seller for selling an event ticket over the phone or the Internet," Lund said. "We review such situations on a case-by-case basis."
Retail groups say that card networks' extensive rules for surcharges make it unlikely they will spread widely. For example, a rule that surcharges must be printed on receipts would mean a costly overhaul of cash register systems, according to the National Retail Federation.
Yet, news articles keep popping up about card surcharges by businesses and public sector services, which are often exempt from state anti-surcharge laws:
- Ohio restaurants are charging extra for plastic, following the lead of liquor stores , which face a cap on the markup they can charge on their products.
- Cabs in Chicago and Las Vegas are under fire for surcharges of 50 cents for $3 a ride.
- Both credit and debit cards are being charged a 27-cent fee at San Francisco parking meters that take plastic.
- And a $3 surcharge for credit card payments in Norman, Oklahoma , drew a court challenge from a resident in 2015.
- State lawmakers in Oklahoma are considering a bill that would explicitly allow municipal surcharges.
Australia lawmakers banned excess credit card surcharges in February amid howls of protest from fee-weary consumers. Surcharges gradually became widespread there after they were allowed in 2003, in some cases rising to a multiple of several times what it cost the business to handle card sales.
In the U.S., surcharges appear to be on a collision course with the popularity of rewards cards, which encourage users to reach for their plastic at every opportunity to maximize points, miles or cash back. Rewards have swept the market, accounting for more than 60 percent of accounts and 85 percent of transactions, according to the U.S. Consumer Financial Protection Bureau's 2015 Consumer Credit Market Report. The rewards paid to cardholders are largely funded by transaction fees on merchants.
Consumers who are aware of surcharges can usually steer clear of them, however, at least at the smaller, independent stores where they usually pop up. When Pollock realized he'd been charged extra at the convenience store in Mountain View, he canceled the purchase and paid in cash.
"I can understand these small merchants asking for more on the small purchases," he said in an email. "They don't have the clout with [MasterCard] or Visa to reduce their costs."