Any extra Charge levied on a Customer for paying with Credit Card is called Surcharge.
At one point, the Merchant Agreement signed by a Merchant with the Credit Card Acquirer Bank forbade Surcharge. It was definitely a breach of contract for a Merchant to levy a Surcharge in that era.
But that “No Surcharge” rule has been repealed by credit card networks in most, if not all, jurisdictions. So, in principle, a Merchant can levy Surcharge.
That said, the government bans Surcharge in some jurisdictions, so it is illegal to levy Surcharge there. When I last checked around two years ago, this was the case in seven US states, as explained below:
Credit Card Surcharge Update in USA:
* Banned only in 7 states
* Max 4%
* Discount on cash allowed incl. debit card
* Convenience Charge is separate and must be a flat fee, no matter the purchase amounthttps://t.co/qs7EwIIleS via @DTPaymentNews— Ketharaman Swaminathan (@s_ketharaman) October 4, 2018
That said, many Merchants who can legally levy Surcharge don’t do it, for reasons explained below:
Why most US Merchants don't levy Surcharge on Credit Card payments:
* Not worth the risk of losing present sale & turning off customer forever
* Hard to comply with Surcharging Rules of Visa, MasterCard & AmEx together
* It's banned in many US stateshttps://t.co/kF5Im3cf76— Ketharaman Swaminathan (@s_ketharaman) February 19, 2020
Furthermore, even when Merchants levy Surcharge, many Customers may not be keen on paying it. I highlighted the following ways to pushback on Merchants in How To Fight Card Payment Surcharge And Take #CashlessIndia To Next Level:
Armed with this knowledge, I flatly refuse to pay Surcharge for paying with my credit card.
When Merchants try to justify Surcharge on the grounds that they have to pay a fee to banks, I politely remind them a few things:
- I pay annual fees to the Issuer for my credit card. Will you reimburse me those fees?
- You get fire insurance for signing up a Merchant Agreement and incurring MDR. What will you give me extra if I pay you Surcharge?
- If I pay for something with a credit card today, the Issuer pays you after a day or two. Suppose I abscond when I get the bill from the Issuer after 30 days, you don’t refund what you collected from the Issuer before.
In short, I emphasize that the credit card model DOES NOT WORK on a back-to-back basis.
In short, it is legal to levy a Surcharge in many jurisdictions but it is customary not to do so even in those jurisdictions.