Is It Legal to Charge Credit Card Fees in California?

In California, businesses are subject to specific regulations regarding credit card fees. Credit card fees are considered a form of interest, which is prohibited in California by the California Financing Law.

Businesses in California cannot charge interest on credit card transactions, but they can charge a convenience fee, also known as a credit card processing fee. This fee can be charged as long as it's clearly disclosed to the customer.

Businesses must follow the California Department of Financial Protection and Innovation's (DFPI) guidelines for credit card fees. The DFPI requires businesses to clearly disclose the fee and provide a clear explanation of how it's calculated.

California has specific laws regarding credit card fees. Most states, including California, allow merchants to add a surcharge when customers pay with a credit card.

As of September 2024, California follows the national trend, permitting merchants to pass along the cost of processing credit card transactions directly to the customer. However, this is subject to some rules.

Merchants in California must notify Visa and Mastercard 30 days in advance of beginning to surcharge. They must also clearly notify clients of the surcharge at the time of payment, in a fee agreement, and with signage at the firm's offices.

The amount of the surcharge must not exceed the amount it costs to process that card, and in no case may the surcharge exceed 4%. Merchants must use a payments system that calculates the total amount of the payment after the surcharge is added, and provide a receipt with the surcharge amount clearly identified.

Here are the key points to remember:

In California, businesses are allowed to add a surcharge when customers pay with a credit card, but they must follow specific rules.

Most states, including California, permit merchants to pass along the cost of processing credit card transactions directly to the customer. This practice is called surcharging.

To surcharge, firms must notify Visa and Mastercard 30 days in advance of beginning to surcharge, and clearly notify clients of the surcharge at the time of payment.

Surcharging is limited to credit cards only, and the amount of the surcharge must not exceed the amount it costs to process that card. In no case may the surcharge exceed 4%.

Merchants must use a payments system that calculates the total amount of the payment after the surcharge is added, and provide a receipt with the surcharge amount clearly identified.

Some businesses prefer to offer discounts instead of surcharges, which can be an economically similar strategy but is viewed more favorably by the card brands, state laws, and rules of professional conduct.

Here are the key rules and best practices for surcharging:

California businesses must be aware of the rules and regulations surrounding credit card fees.

To implement surcharging and discounting, firms must be familiar with three sets of rules: card brand rules, state laws, and the state rules of professional conduct.

Card brand rules are generally uniform across all states and must be followed regardless of state laws. The card brands, such as Visa and Mastercard, permit surcharging and discounting, but with some rules that merchants must follow.

Some key surcharging rules and best practices include:

Businesses must also comply with California law regarding credit card surcharges, which requires clear and conspicuous disclosure of any surcharges before the transaction is completed.

In California, businesses must provide clear and conspicuous disclosure of any surcharges before the transaction is completed. This means customers should be informed about the surcharge amount during the checkout process, whether in-person or online.

Some states prohibit or restrict credit card surcharges, but California allows it with certain requirements. Businesses must adhere to specific measures to ensure transparency and fairness.

To comply with California law, businesses must ensure that the surcharge does not exceed the actual cost of processing the credit card payment. This typically ranges between 1.5% to 4%, depending on the credit card type and the merchant’s agreement with the payment processor.

Businesses must clearly display the surcharge policy at the point of sale. For physical locations, this may involve signage near the register or terminal. For online transactions, the surcharge information should be visible on the payment page before finalizing the purchase.

Merchants must keep detailed records of their surcharge practices, including documenting the cost of credit card transactions and the corresponding surcharge amounts. This can provide crucial evidence in case of disputes or audits.

Merchants in California must be aware of the distinction between debit and credit cards, as adding surcharges to debit card transactions is prohibited under both federal and California law.

Debit cards are treated differently than credit cards, and many consumers may not realize this distinction. This is why it's essential for businesses to understand the unique rules governing debit card transactions.

Government entities and educational institutions often have different rules or limitations when it comes to credit card surcharges. Some state and local government agencies may be restricted from imposing surcharges due to specific statutes or policies.

Non-profit organizations are generally subject to the same surcharge laws as for-profit businesses, but they may need to follow additional guidelines or best practices to ensure transparency and maintain donor trust.

Businesses in industries like healthcare or utilities may have additional restrictions or requirements when it comes to credit card surcharges. These regulations can vary widely and often require thorough legal review to ensure full compliance.

California law has specific regulations that businesses must adhere to when deciding whether to impose credit card surcharges.

In 2018, a pivotal court ruling lifted the ban on credit card surcharges in California, allowing businesses to impose surcharges under certain conditions. Merchants must clearly disclose the surcharge amount to customers before completing the transaction.

The surcharge cannot exceed the actual cost of processing the credit card payment, which is typically around 2% to 3% of the transaction amount. This is a crucial consideration for businesses looking to implement surcharges.

Businesses must also comply with the regulations set forth by credit card networks like Visa and MasterCard. These networks have their own rules and requirements, which can include caps on surcharge amounts and mandates for customer notification.

To ensure compliance and transparency, businesses must communicate the surcharge both at the point of sale and on the receipt. This is essential for maintaining customer trust and avoiding potential legal issues.