Merchants May Now Recover Credit Card Fees.

Recovering Credit Card Fees: Cash Discounting, Surcharging, Dual Pricing, and Convenience Fees

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In 2023, U.S. merchants paid over $100 billion in fees for Visa and Mastercard transactions alone. To help you offset these costs, we’ve outlined the latest practices for cash discounting, surcharging, dual pricing, and convenience fees, along with current card brand rules and legal developments as of 2025.

Current Practices for Recovering Credit Card Fees

Merchants can recover credit card processing fees through several strategies, each with distinct approaches and compliance requirements. Below, we explore the most common methods.

Cash Discounting

What is it? Cash discounting involves listing the standard price as the credit card price and offering a discount for customers who pay with cash, check, or debit. For example, a $100 item might be listed at $100 for card payments, but cash payments could receive a 3% discount, reducing the price to $97.

Current Practices:

  • Legal in all 50 states, making it a popular choice for merchants.
  • Requires clear signage at the point of sale (POS) and on receipts, indicating the discount for non-card payments.
  • Common in industries like retail and gas stations, where dual pricing (cash vs. card) is displayed prominently.
  • Merchants must ensure the posted price reflects the credit card price, with discounts applied at checkout for cash payments.

Surcharging

What is it? Surcharging adds a percentage fee (typically 3%) to credit card transactions to offset processing costs. For example, a $100 purchase with a 3% surcharge results in a $103 total.

Current Practices:

  • Legal in most states, but prohibited in California, Connecticut, Maine, Massachusetts, and New York as of 2025.
  • Colorado caps surcharges at 2%, while New York, New Jersey, Nevada, and South Dakota limit surcharges to the merchant’s actual processing cost.
  • Texas bans surcharges but allows convenience fees and cash discounts; however, federal courts have challenged this ban, creating uncertainty.
  • Merchants must display surcharge notices at store entrances, POS, and on receipts, with the surcharge listed as a separate line item.
  • Surcharges are only permitted on credit cards, not debit or prepaid cards, even if run as credit transactions.

Dual Pricing

What is it?Dual pricing displays two prices for each item: a higher price for credit card payments and a lower price for cash or other non-card payments. It’s similar to cash discounting but emphasizes transparent pricing for both payment types.

Current Practices:

  • Legal nationwide, often used in states where surcharging is restricted.
  • Requires clear signage showing both prices (e.g., $100 for credit, $97 for cash) at POS, entrances, and online.
  • Common in industries with variable pricing, like restaurants or service stations.
  • Merchants must ensure receipts reflect the pricing structure and comply with card brand rules.

Convenience Fees

What is it? Convenience fees are flat fees charged for using a non-standard payment channel, such as online or phone payments, regardless of payment type (credit, debit, or ACH).

Current Practices:

  • Legal only when an alternative payment channel (e.g., in-person) exists; cannot be charged if the business only accepts cards.
  • Common in industries like ticketing (e.g., online movie ticket purchases) or B2B payments.
  • Must be disclosed before payment and not applied to recurring or subscription payments.
  • Not tied to processing costs, unlike surcharges, but must be a fixed amount (e.g., $1.95 per transaction).

Visa, Mastercard, American Express, and Discover have strict rules governing fee recovery programs to ensure transparency and fairness. Key rules include:

  • No Debit or Prepaid Card Fees: Surcharges are prohibited on debit or prepaid card transactions, even if processed as credit. Merchants must use payment gateways that identify card types to avoid violations.
  • Surcharge Caps:
    • Visa: Maximum 3% or the merchant’s actual processing cost, whichever is lower.
    • Mastercard: Maximum 4% or the merchant’s average effective merchant discount rate, whichever is lower.
    • American Express and Discover: Similar caps, typically 3-4%, aligned with processing costs.
  • Registration Requirements: Merchants must notify their processor and card brands (except American Express and Visa in some cases) at least 30 days before implementing surcharges. Mastercard requires specific registration paperwork.
  • Disclosure Requirements:
    • Clear signage at store entrances and POS in minimum font sizes (e.g., 32-point Arial at entrances, 16-point at POS).
    • Online merchants must display surcharge notices on websites and before checkout.
    • Surcharges must appear as a separate line item on receipts.
  • Non-Discrimination: Surcharges must be applied uniformly across all credit card brands accepted, per card brand parity rules.
  • No Profit Motive: Surcharges cannot exceed the merchant’s processing costs, ensuring they are not used for profit.
  • Convenience Fees: Must be fixed, not percentage-based, and only apply to non-standard payment channels. Card brands like Visa restrict convenience fees to specific scenarios, while Mastercard limits them to certain industries (e.g., government, education).

Non-compliance can result in fines ranging from $1,000 per transaction to $50,000-$1 million for repeated violations, depending on the card brand and processor.

Legal Cases Contesting Card Brand Rules

Several legal cases have challenged card brand rules and state surcharge bans, often on First Amendment grounds, arguing that restrictions on pricing communication infringe on free speech. Key cases include:

  • Italian Colors Restaurant v. Becerra (2018): The Ninth Circuit ruled that California’s anti-surcharge law (Civil Code section 1748.1) violated merchants’ First Amendment rights by prohibiting single-sticker pricing (listing one price with an added surcharge for credit cards). This led to California allowing surcharges under certain conditions, though new “drip pricing” laws (SB 478, effective July 1, 2024) require total price disclosure, complicating surcharge practices.
  • Expressions Hair Design v. Schneiderman (2017):The U.S. Supreme Court held that New York’s surcharge ban restricted protected commercial speech, leading to the law’s effective unenforceability. However, New York’s 2024 law now requires total price disclosure, conflating surcharges with cash discounting and creating compliance challenges.
  • Texas Surcharge Ban Challenges: Federal courts, including the Fifth Circuit, have ruled parts of Texas’s surcharge ban (Section 339.001 of the Texas Finance Code) unconstitutional, allowing merchants to impose surcharges if compliant with card brand rules. However, the Texas AG maintains the ban is enforceable, creating legal ambiguity.
  • Kansas Surcharge Ban (2021): A federal court struck down Kansas’s 1986 anti-surcharge law, allowing surcharges if merchants include fees in the listed price and provide clear disclosures.
  • Florida and Oklahoma Cases: Federal courts have deemed anti-surcharge laws in both states unconstitutional, permitting surcharges under card brand and federal guidelines.

These cases highlight ongoing tensions between state laws, card brand rules, and merchants’ rights to communicate pricing. Merchants must stay vigilant, as state regulations and court rulings evolve rapidly.

Conclusion

Recovering credit card fees through cash discounting, surcharging, dual pricing, or convenience fees can significantly boost your bottom line, but each method comes with unique rules and challenges. By understanding card brand regulations, staying updated on legal developments, and implementing transparent practices, you can offset processing costs while maintaining customer satisfaction. At Zerofee Commerce, we’re committed to helping you navigate these options to maximize profitability while staying compliant. Contact us for tailored solutions or to learn more about our zero-fee payment processing tools.