Credit Card Surcharges: Why Merchants Use Them & What Consumers Think

Merchant surcharges are increasingly common, as retailers, large and small, look for extra revenue and consumers voice their frustration. A recent Reddit post encapsulated the growing sentiment: “Over the past few months, it feels like almost every place I eat at is adding a 3% to 4% fee just for paying with a credit card,” one user wrote in November. “I get that costs are going up for businesses, but this used to be rare, and now it feels like it’s everywhere.”

For merchants, surcharging presents a double-edged sword. While it’s seen as a justified hedge against interchange fees and rising costs, there’s a risk of alienating customers with what they perceive as unnecessary fees. The question becomes: is it worth potentially losing a customer over a surcharge of 3% or 4%?

The situation is complicated by often-confusing guidance from card networks and uneven regulations that vary state by state. At stake is the consumer experience, and the tension between merchants seeking cost recovery and customers resisting additional fees is becoming increasingly apparent.

Surcharging allows merchants to recover rising payment acceptance costs without constantly repricing goods and services. However, for customers, it can feel like yet another fee added to an already growing list. This friction is no longer theoretical; it’s manifesting in surveys, policy debates, and growing complaints on social media.

Recent research from J.D. Power indicates that surcharging has become a legitimate business strategy, not an isolated practice. Their 2026 U.S. Merchant Services Satisfaction Study found that 35% of small businesses surveyed now surcharge credit card transactions. Worryingly for merchants, 32% of those surcharging reported that customers sometimes cancel purchases when the fee is applied.

This presents a clear warning: while a surcharge can recoup margin on completed sales, it simultaneously risks reducing the overall number of sales. The PYMNTS Intelligence report, “Credit Card Surcharges: How Cardholders React to Extra Costs,” reinforces this, revealing that 56% of consumers are “very” or “extremely” likely to switch merchants due to surcharge fees. Another PYMNTS Intelligence report, “How Consumers Perceive Surcharge Prompts,” found that 68% of consumers scrutinize receipts for hidden surcharges.

This dynamic highlights the core conflict: merchants view surcharges as cost recovery, while many customers perceive them as an unwelcome fee. It’s a tension playing out in real-time.

Not Limited to SMBs

This isn’t solely a small business issue. The broader debate over swipe fees is resurfacing in Washington, keeping surcharges in the news as one of the few immediate levers merchants can pull. Senators Dick Durbin of Illinois and Roger Marshall of Kansas have reintroduced the Credit Card Competition Act, and Senator Durbin’s office announced that former President Donald Trump endorsed the bill.

Regardless of whether the bill passes, it underscores the renewed focus on acceptance costs. Merchants are seeking solutions without waiting for legislative or legal action.

State-by-State Bingo

The legal landscape surrounding surcharging is complex, with some jurisdictions prohibiting or heavily restricting the practice. A key point of confusion is the distinction between a “surcharge” and a “cash discount.”

Connecticut, for example, prohibits surcharges for credit card use but generally allows cash discounts. The legal landscape has been evolving through court challenges, with surcharge bans in states like California, Florida, and Texas being struck down or limited. Other states, like Oklahoma, have shifted towards a disclosure-and-transparency framework. Oklahoma recently legalized surcharges in November, capping them at 2% and requiring clear signage and customer choice.

Massachusetts is also a state to watch, with a 2026 bill regarding surcharges and fee transparency progressing through the state legislature, reflecting a broader trend towards stricter disclosure rules.

Card network rules add another layer of complexity, often being more detailed and immediately enforceable than state laws. Visa allows surcharging in most states but caps it at the lesser of the merchant discount rate or 3%, requiring compliance with notice and disclosure requirements. Mastercard similarly permits surcharging, capping it at the lesser of the merchant’s average effective rate or 4%, with similar disclosure requirements. These requirements emphasize the need for clear communication to customers before they commit to a card payment, including a separate line item on receipts.

The Risk Factor

Merchants are driven to surcharge by the need for targeted cost recovery. Many argue they can’t absorb card costs without raising prices across the board or reducing quality. Some report that customers accept surcharges when they are clearly disclosed and framed as a credit-only fee.

Restaurant operators often add that raising menu prices can compound costs and impact tipping, while a surcharge can be presented as a direct pass-through of card processing fees. Payment providers like Toast have even begun positioning surcharging as a mainstream feature, adjusting processing rates and offering automated, compliant surcharging options.

However, even Visa CEO Ryan McInerney has described surcharging as “not a great customer experience,” suggesting some merchants try it and then reverse course. American Express CEO Steve Squeri has also warned that higher surcharges are “bad” for consumers.

While a surcharge can improve unit economics, it can also damage customer relationships. Consumers, particularly in the current economic climate, are less willing to accept incremental fees. A surcharge might recoup a small cost today but could result in losing a customer for life.