Credit Card Surcharges: Know What They Are

Have you ever paid anything with the card just to try to figure out an additional charge on the receipt? Have you ever wondered why some stores offer discounts to customers who pay cash compared to those who use credit cards?

When making a card purchase, some retailers may incorporate a surcharge on the total amount you pay at the cashier. The legality of these types of fees varies by location. Some countries allow it, some don’t. In the case of EU member countries, the surcharge is optional.


What is the credit card surcharge?

credit card

Many sites today allow customers to pay either in cash or by credit card for convenience. Joining the card system is not, however, very easy. Merchants have to open a merchant account with a credit card association and pay the necessary fees for joining necessary elements such as global network connection and certified equipment.

Ideally, the merchant should incorporate the costs associated with credit card admission, especially when they are globally recognized, such as Visa, Mastercard, and American Express. Larger establishments, such as restaurant chains and department stores, are able to absorb the costs of implementing credit card payment systems due to high sales volumes.

On the other hand, small independent establishments may find it more difficult to pay processing fees while generating a profit. As a result, these companies can transfer costs to customers through a surcharge implemented on every credit card purchase.


How does the surcharge work?

How does the surcharge work?

Let’s say you go to a computer store to buy a laptop that costs 700 dollars. If the store accepts credit card payments, the 2% surcharge for the laptop will be added to the purchase price. The store may have two approaches to laptop pricing to adjust the rate:

  1. Include the price by default on the label; The laptop costs 714.29 dollars when you take it off the shelf. If you pay in cash, the store gets a 2% “discount”, paying only 700 dollars. This is an accepted approach in many cases.
  2. Keep the price at 700 dollars and subsequently add the 2% surcharge when paying by credit card at the cashier. In this case, the receipt should show the 14.29 dollars surcharge, totaling the 714.29 dollars. Depending on the legislation in force, this may be a violation of consumer rights.

There is a third approach, in which you pay no surcharge: you only pay 700 dollars for the notebook and the store itself guarantees the surcharge costs. As mentioned before, not all establishments can do this. Smaller merchants who are forced to do so may not be able to make a profit without raising the price of their products or services.


Are companies allowed to do so?

credit loan

It basically depends on where you live. Most countries have their own laws governing the use of credit cards, including the addition of fees and surcharges. The issue of consumer rights is very important for this debate, as it is ethically correct to transfer processing fees to customers who are promised other upfront prices on products and services.

In Portugal, the Payment Services Directive has been in force since 1 November 2009, which gives each Member State of the Single Euro Payments Area (SEPA) the freedom to allow or prohibit the additional charge for credit card payments (and debt).

At the time, the maximum rate applied in Portugal by merchants for each credit card payment was around 2.25%.

However, the most recent proposals from the European Commission propose to level out the fees charged by banks to retailers for card payments. The legislation provides for a ceiling of 0.3% for credit card fees.

This surcharge is mostly charged by gas stations. To copy with a decline in credit card usage, there are several banks that issue cards that example users from paying surcharges.


What if an establishment charges surcharges above what is allowed?

The recommended course of action is to report the store in question to the credit card association designated for the purpose and not the store management or the bank that issued the card. For example, both Visa and Mastercard have strict rules as to whether or not merchants can add a credit card surcharge to the cost of their products. If you have found a store that accepts a Visa card and is in breach of surcharge rules in Portugal, you can report it to Visa directly.

If you want to avoid being charged with surcharges, a good tactic is to get a surcharge-free credit card. You can always pay by cash or debit card.