In What States Is It Illegal to Charge Credit Card Fees? A Complete Guide

Introduction: Understanding Credit Card Processing Fees

When you swipe, tap, or insert your credit card at a store, a complex system of financial transactions begins behind the scenes. Merchants pay fees to accept credit cards—typically around 1.5% to 3.5% of the transaction amount—known as interchange fees. These are collected by credit card networks like Visa, Mastercard, American Express, and regional processors. To compensate for these costs, many businesses consider adding surcharges or convenience fees directly to credit card transactions.

But there’s a catch: in some U.S. states, it is illegal for merchants to pass these fees on to customers. Understanding where these restrictions apply isn’t just important for consumers—it’s crucial for business owners who want to avoid fines, legal action, or damage to their reputations.

This comprehensive guide explores which states prohibit credit card surcharges, the types of fees involved, the legal and regulatory differences between them, and best practices for businesses operating in multiple jurisdictions.

What Are Credit Card Surcharges?

Before diving into state laws, it’s important to understand the different types of fees associated with credit card payments.

Surcharge vs. Convenience Fee: What’s the Difference?

While often used interchangeably, credit card surcharges and convenience fees are legally and functionally distinct.

• Credit Card Surcharge: An additional fee charged exclusively for using a credit card, typically a percentage of the transaction amount. This fee is meant to recoup the merchant’s processing costs.
• Convenience Fee: A flat or percentage-based charge for using an alternative payment method (e.g. paying taxes online instead of by check). Convenience fees are allowed in more states if the payment method is non-standard.

For example, a restaurant that accepts only cash or credit may not legally charge a surcharge on credit card purchases if it’s the primary payment method. However, a government office that ordinarily accepts checks might impose a “convenience fee” for online credit card payments, even in states that ban surcharges.

Is a Surcharge the Same as a Minimum Purchase?

Another way businesses manage credit card costs is by setting minimum purchase requirements for card transactions. The federal Durbin Amendment (part of the Dodd-Frank Act) allows merchants to set a minimum of up to $10 for credit card purchases, provided it is clearly posted. This is different from a surcharge and is legal in all 50 states.

Where Are Credit Card Surcharges Illegal?

Despite a federal court decision in 2013 that partly struck down anti-surcharge laws, ten U.S. states still maintain laws that effectively ban credit card surcharges. These laws predate current credit card network rules and remain in effect due to ongoing legal disputes, regulatory caution, and state-specific legislation.

Here is the list of states where surcharging is currently prohibited:

1. California
2. Colorado
3. Connecticut
4. Florida
5. Kansas
6. Maine
7. Massachusetts
8. New York
9. Oklahoma
10. Texas

A Closer Look at the Legal Landscape

Even though federal rulings have challenged state bans, many of these laws remain unenforced or are actively defended by state attorneys general. As a result, merchants—especially those operating across state lines—must tread carefully.

For instance, in 2013, a class-action lawsuit (Expressions Hair Design v. Schneiderman) challenged New York’s ban on surcharging. A federal appeals court ruled that such bans infringe on First Amendment rights because they restrict how businesses communicate pricing. However, the U.S. Supreme Court vacated that decision in 2017, sending it back for reconsideration on different grounds.

Meanwhile, card networks like Visa and Mastercard have their own rules about surcharging, including disclosure requirements, limits (no more than 4% or the merchant’s cost, whichever is lower), and mandatory registration with the networks.

State-by-State Breakdown of Credit Card Surcharge Laws

Let’s explore what the law says in each of the ten restricted states.

1. California

California’s Civil Code § 1748.10 explicitly prohibits merchants from adding a surcharge when customers use a credit card. However, the law does allow for convenience fees if the customer opts for a non-customary payment method (like online bill pay). This is relevant for landlords, government agencies, and service providers who may offer electronic payments as a convenience.

Note: Cash discounts—a reduction in price for customers paying with cash—are permitted and often used as a workaround.

2. Colorado

Under Colorado Revised Statutes § 6-1-509, retailers cannot impose a surcharge “by any means” solely for paying with a credit card. The law is broad and enforced by the state attorney general. However, similar to other states, Colorado allows cash discounts, which have become a popular alternative.

3. Connecticut

Connecticut General Statutes § 42-157 prohibits imposing a surcharge on credit card users. But like several other states, it permits merchants to offer a discount for cash, check, or debit card payments. This subtle distinction lets businesses adjust pricing in compliance with the law.

4. Florida

Florida Statutes § 501.0117 was once an absolute ban on credit card surcharges. However, this law was struck down in a federal court in 2015. Despite that, the decision was stayed pending appeal, and the state later enacted a revised version of the law.

As of 2023, Florida still prohibits surcharging, but only under certain conditions. Merchants should consult legal counsel before implementing any fee structure. Notably, cash discounts remain legal and widely used.

5. Kansas

Kansas does not explicitly criminalize credit card surcharges in state law, but the Kansas Consumer Protection Division has historically interpreted the Kansas Consumer Protection Act as prohibiting discriminatory pricing based on payment method. While court rulings are limited, the state generally aligns with the anti-surcharge stance.

6. Maine

Title 30-A of the Maine Revised Statutes § 1201-A states that no seller “shall impose a surcharge on a holder of a credit card” for its use. The law includes exceptions for cash discounts. Violations can lead to penalties, including restitution and civil fines.

7. Massachusetts

Massachusetts General Laws Chapter 93 § 42 bans any additional charge for using a credit card. The law is longstanding and strictly interpreted. Importantly, Massachusetts also prohibits setting minimum purchase amounts for credit card transactions—unlike federal rules—which makes it one of the strictest states for payment flexibility.

This means Massachusetts merchants cannot:

• Charge a surcharge for credit cards
• Set a minimum purchase amount for credit card use
• Discriminate against credit card users through hidden fees

8. New York

New York’s General Business Law § 518 bans surcharges on credit card transactions. The law was at the center of a landmark legal case. While courts have questioned its constitutionality, it remains in effect as of 2024 because the legal resolution is pending. The New York Attorney General’s office continues to enforce it in practice.

Businesses in New York often use the “cash discount” model to comply. For example, a price tag might read: “$100 (credit), $97 (cash).”

9. Oklahoma

Oklahoma Statutes Title 15 § 182(6) prohibits surcharging for credit card use. However, the law also allows for reasonable convenience fees when non-traditional payment options are used. Like other states, Oklahoma permits cash discounts, giving businesses a way to offset processing costs without violating the law.

10. Texas

Texas Business & Commerce Code § 604A.007 specifically bans surcharges on credit card transactions. The law, strengthened in 2019, allows the state attorney general to impose fines of up to $100 per violation. However, Texas explicitly permits cash discounts, a loophole many retailers use to shift pricing strategies.

Texas also prohibits setting minimum purchase amounts unless allowed under card network rules—but only if those rules don’t conflict with state law. So while federal rules permit $10 minimums, Texas merchants must still verify local compliance.

How Do Credit Card Companies View Surcharging?

Even in states where surcharging is legal, merchants must follow card network rules—Visa, Mastercard, American Express, and Discover—to avoid penalties.

Visa and Mastercard Surcharging Rules

Both Visa and Mastercard allow surcharging under strict conditions:

• Merchants must register 30 days in advance with the card network.
• The surcharge cannot exceed 4% of the transaction amount or the merchant’s actual processing cost, whichever is lower.
• Surcharges must be clearly disclosed on signage, receipts, and invoices.
• Debit cards, prepaid cards, and digital wallets cannot be surcharged.

American Express and Discover

American Express allows surcharging under similar rules as Visa. Discover, however, does not permit surcharges at all, even in states where it is legal. This means merchants who accept Discover must absorb the processing costs or find alternative solutions.

Are There Exceptions to the Rules?

Yes—certain industries and transaction types are subject to different rules.

Government Fees and Taxes

Government entities (e.g. municipalities, courts, DMVs) often charge convenience fees for credit card payments. These are typically allowed because the standard payment method is cash, check, or electronic transfer. However, such fees must be:

• Reasonable
• Clearly disclosed
• Used to cover actual processing costs

Nonprofit and Educational Institutions

Nonprofits and schools may charge a convenience fee for tuition, donations, or event payments via credit card—especially if online portals are used. However, this fee must not be framed as a surcharge on a standard payment option.

For example, charging a $5 convenience fee for paying tuition online is typically legal; charging a 3% fee on all credit card tuition payments (regardless of payment channel) could violate state law.

Service Industry Fees (Hotels, Car Rentals, Airlines)

Some service providers apply “cardholder fees” or “booking fees” that resemble surcharges. However, as long as these fees are not exclusively tied to credit card use—and are applied uniformly—they may not fall under anti-surcharge laws.

It’s a fine line, and scrutiny from regulators and consumer advocates continues to grow in these sectors.

Cash Discounts vs. Surcharges: A Legal Loophole?

Businesses in restricted states have found a clever workaround: cash discounts.

A cash discount is not a fee added to credit card users—it’s a reduced price offered to customers who pay with cash, check, or debit. Since the baseline price is the credit card price, lowering it for other payment methods avoids legal issues with surcharging.

For example:

This pricing model is fully compliant with both network rules and state laws. The U.S. Supreme Court has indicated that this form of “differential pricing” is protected commercial speech, making it a widely accepted alternative.

Penalties for Non-Compliance

Violating state anti-surcharge laws can lead to serious consequences:

• Civil fines (e.g. up to $100 per violation in Texas)
• Restitution to affected customers
• Attorney General investigations
• Loss of merchant account or processing privileges
• Damage to brand reputation

Moreover, credit card networks can penalize merchants who fail to follow their rules—even if state law allows surcharging. Fines from Visa or Mastercard can range from $5,000 to $25,000 for noncompliance.

How to Stay Compliant: Best Practices for Merchants

Whether you’re a small business owner or manage a national retail chain, here are practical steps to ensure compliance.

1. Know Your State’s Laws

Do not assume that what’s legal in one state is legal in another. If you operate in multiple states—especially through e-commerce—you may need to adjust your pricing dynamically based on the customer’s location.

2. Use Cash Discounts Instead of Surcharges

The “sticker price” should be the full amount charged by credit card. Then, offer a discount for alternative payment methods. This approach is legal in all 50 states and accepted by card networks.

3. Disclose Fees Clearly

If you are in a state that allows surcharging (e.g., Illinois or Ohio), clearly post signage at entry points and checkout counters. Use language like:

• “A 3% surcharge applies to all credit card transactions.”
• “We accept Visa, Mastercard, and Discover. A surcharge may apply.”

4. Train Your Staff

Employees should be able to explain your pricing policy to customers. A well-informed team can reduce friction, complaints, and potential legal risks.

5. Monitor Legal Developments

State laws and court decisions change. Subscribe to alerts from your merchant processor, state attorney general, or trade associations to stay up to date.

Consumer Awareness: What You Can Do

As a consumer, knowing the rules empowers you to make informed choices.

Check the Receipt

If you see a line item labeled “credit card fee,” “surcharge,” or “service fee” on your bill, verify whether it’s allowed in your state. In restricted states, you can report the merchant to the state attorney general.

Look for Cash Discounts

If a business offers a lower price for cash payments, that’s likely a legal way they’re managing costs. You’re not being penalized—you’re being incentivized.

Report Illegal Fees

Most states provide online portals or hotlines to report suspected violations. Your report could help protect other consumers and lead to enforcement actions.

The Future of Credit Card Surcharges

The legal landscape continues to evolve. As e-commerce grows and transaction fees rise, pressure is mounting on both states and card networks to clarify their policies.

Several trends are emerging:

• More states may challenge their own anti-surcharge laws following federal court rulings.
• Merchants are increasingly adopting cash discount models as a safe, transparent solution.
• Consumer protection advocates are pushing for clearer disclosure requirements.
• Legislation may arise to standardize surcharge rules nationally.

Until then, the patchwork of state laws remains a challenge—one that requires ongoing attention from both businesses and consumers.

Conclusion: Navigating the Complex World of Credit Card Fees

Understanding where it’s illegal to charge credit card fees is essential for business compliance and consumer rights. While ten states—including major markets like California, Texas, and New York—currently ban surcharges, the rules are nuanced and constantly shifting.

Key takeaways:

• Cash discounts are legal everywhere and a safe way to offset processing costs.
• Surcharging is not allowed in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
• Always follow card network rules, even if state law allows surcharging.
• Disclose all fees clearly and train staff accordingly.

Whether you’re shopping, running a store, or managing a nonprofit, being informed helps you avoid legal issues and build trust. As laws evolve, staying proactive is the best strategy for navigating the world of credit card fees.

Which states prohibit merchants from adding credit card surcharges?

Ten states in the U.S. have laws that restrict or prohibit merchants from adding surcharges when customers use credit cards. These states are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. While the specifics of each law vary, they generally make it illegal for businesses to impose extra fees solely for the use of a credit card during a transaction. These regulations aim to protect consumers from unexpected costs and promote fair pricing practices.

It’s important to note that these laws typically apply only to credit card surcharges, not to convenience fees, which may still be allowed under certain conditions. Additionally, some of these laws have been subject to legal challenges over the years, which has led to temporary enforcement suspensions or reinterpretations. For instance, court rulings in California and Florida previously lifted bans temporarily, but legislative or judicial actions have since reinforced restrictions. Merchants operating in these states should stay informed about the current legal status and consult legal counsel if unsure about compliance.

Can businesses in banned states still charge convenience fees?

Yes, in most states where credit card surcharges are prohibited, businesses may still impose convenience fees under specific circumstances. A convenience fee is typically allowed when a customer chooses to pay using a non-customary payment method, such as paying a utility bill online instead of by mail or in person. The key distinction is that convenience fees are not penalties for using a credit card but rather charges for the added service of enabling an alternative payment channel.

However, convenience fees must be clearly disclosed and applied consistently—not just during credit card transactions. For example, a government office might charge a fee for online tax payments, whether via credit card or debit card, as long as the fee applies to the method, not the card type. Businesses must ensure their practices align with state laws and network rules from card providers like Visa and Mastercard, which require transparency and proper categorization of such fees.

What is the difference between a surcharge and a convenience fee?

A surcharge is an additional fee imposed specifically because a customer uses a credit card, effectively passing on the merchant’s interchange or processing costs directly to the consumer. In contrast, a convenience fee is charged for the privilege of using an alternative payment method—such as online, over the phone, or via mobile app—when the business typically accepts payments in person or by check. The distinction is crucial in states where surcharges are banned but convenience fees are permitted under regulated conditions.

For example, a university might charge a convenience fee if students choose to pay tuition online instead of by direct bank transfer, regardless of whether a credit card is used. This fee covers the administrative cost of supporting the digital platform. On the other hand, adding 3% to a transaction solely because a customer swipes a credit card at a physical store would be considered a surcharge and could violate state law in certain jurisdictions. Proper labeling, disclosure, and application of fees are essential to remain compliant.

Are there federal laws regulating credit card surcharges?

There is no federal law in the United States that universally bans or permits credit card surcharges. Instead, regulation is largely governed by the rules established by major credit card networks such as Visa, Mastercard, American Express, and Discover, along with state-level legislation. These network rules permit surcharging in most states but impose requirements like clear disclosure, limits on the fee amount, and the need to register with the card brands beforehand.

However, because card network rules conflict with state laws in certain areas, merchants in banned states are prevented from surcharging even if the card networks allow it. This creates a patchwork regulatory environment. Federal courts have weighed in on these conflicts during legal disputes, sometimes ruling in favor of merchants’ rights to surcharge based on First Amendment grounds, but state legislatures have responded by reinforcing or adjusting their statutes. As a result, federal oversight remains indirect, and businesses must comply primarily with state and network rules.

How do credit card surcharge laws affect small businesses?

Small businesses in states where credit card surcharges are illegal must absorb processing fees as part of their operational costs, which can impact profit margins, especially in low-margin industries like retail or food service. Without the option to pass these fees to customers, small business owners may adjust their pricing strategies—such as offering cash discounts or increasing base prices across the board—to offset the expense of accepting credit cards.

On the other hand, businesses in states that allow surcharges must carefully follow both state guidelines and card network regulations to avoid fines or legal issues. This includes displaying proper signage at the point of sale, limiting the surcharge to the actual processing cost (capped at 4% by network rules), and registering with card networks. While surcharging could help reduce costs, the administrative burden and potential customer dissatisfaction must be weighed against the financial benefits.

What are the penalties for illegally charging credit card surcharges?

Merchants who violate state laws by imposing illegal credit card surcharges may face penalties that vary by jurisdiction. These can include fines, lawsuits from consumers or state attorneys general, and liability for damages. For example, in some states, consumers may sue for statutory damages—sometimes receiving hundreds of dollars per violation—making noncompliance a costly risk, especially for businesses that process many transactions.

In addition to legal penalties, businesses risk reputational damage and loss of customer trust if they are found to charge illegal fees. Credit card networks may also impose fines or terminate merchant accounts for noncompliance with their rules, even if the merchant acted in ignorance of the law. To avoid these consequences, businesses should review their state’s current regulations, train staff appropriately, and regularly audit their pricing and fee practices to remain in good standing.

Is it legal to offer cash discounts instead of charging credit card fees?

Yes, in all 50 states, it is legal for merchants to offer cash discounts rather than imposing credit card surcharges. This pricing strategy involves setting a base price for cash, check, or debit transactions and offering that as the standard rate, while charging a higher “retail” price for credit card users. Because a discount is considered a reduction from a non-preferred price (as opposed to a penalty), it falls outside the scope of surcharge prohibitions.

For example, a gas station might display a lower price per gallon for cash and a higher posted price for credit card purchases, as long as the signage clearly reflects this difference. This method is legally safer in states that ban surcharges and is encouraged by credit card networks as a compliant alternative. Offering cash discounts can also incentivize faster payments and lower processing costs while remaining transparent and lawful across state lines.