What Is A Surcharge Fee? Is It Legal?
Whether you are a consumer or a new retail business owner, surcharges are something you might have heard of. This is the fee that you read on bills, especially on credit card bills. In fact, these are the fees imposed on credit cards only. So what is the surcharge fee?
It is usually a payment processor's fee that the merchant pays on every credit card transaction. If this fee is imposed on merchants, then why is it being added to the consumer's bill? Is it legal in the US to transfer this fee to the product beneficiary? Shouldn't the merchant be the one paying this fee? These are the common questions that come to your mind.
So, let's discover the fair answer to all of these questions and uncover the truth.
What Is The Surcharge Fee?
A surcharge is an extra charge, tax, or fee that is added to the original price of goods or services. It is often added on behalf of the government. This fee is not usually mentioned in the original price of the goods or services. Instead, it is added at the time of transaction processing.
Merchants have this surcharge on every transaction made through a credit card. If this fee is not transferred to consumers, it can accumulate a huge amount and reduce the profit margins of business owners. This fee can be a percentage of the total charged amount or a fixed price. Usually, it is 3% of the sales amount. This fee is also known as the checkout fee.
Merchants primarily collect this fee in three domains.
- To recover the transaction fee applied to every credit card purchased.
- To abide by state laws and charge customers for government taxes and fees without raising the cost of the product.
- To encourage the use of cash or debit cards as alternative forms of payment.
Example Of Surcharge
Here are some examples of this levy.
- In the transport industry, particularly in the airline and shipping industries, a fuel surcharge may be added to the airline ticket or shipping cost to overcome the fluctuations in fuel prices.
- In order to cover the government tax, cable and telecom companies usually include this expense separately in the final bill instead of adding the cost to the product cost to offset the expense.
- Hotels sometimes add a surcharge, commonly known as a resort fee, which includes the cost of Wi-Fi, pool, and gym access apart from the room rent.
- Internet service may add surcharges to cover the cost of premium packages or exceed the data usage limit.
- Restaurants often have a surcharge, which can help them pay fair wages to their employees rather than relying on the customers’ tips. This fee may also be added to food delivery services to compensate the drivers for delivery, fuel, and vehicle maintenance. However, in this case, customers are informed of this fee, allowing them to review the additional cost before making the payment.
- Usually, businesses have to pay a credit card processing fee. To overcome this cost, they add a checkout fee to every consumer’s bill for total sales. For consumers, the amount is usually insignificant, but for businesses—especially those handling large volumes of sales on a daily basis—the total impacts the overall business profitability.
What Are The Surcharge Fees For A Credit Card?
It is the processing fee that a merchant must pay to a credit card processor or service provider for each transaction involving a credit card. Therefore, to compensate for this processing fee, a credit card surcharge is imposed on customers who wish to pay for their goods via credit card. This fee can only be applied to a credit card, not a debit card. The transfer of this cost, whether it is legal or not, varies by country, state, or region. In some countries, it may be totally prohibited, while in others, it may be allowed within certain limits.
For example, in the United States, the transfer of this cost to the customer is legal, except in Puerto Rico, Massachusetts, and Connecticut.
A credit card surcharge is also referred to as a CC surcharge. It is usually a percentage of the transaction. For example, if a customer makes a purchase of $200 with a credit card, the total amount charged to the customer can be $204. This extra $4 is the surcharge.
Merchants implementing credit card surcharges need to comply with the rules and regulations set by the credit card networks.
Why is A Surcharge Charged?
There are multiple reasons why this fee is charged, and they usually serve to cover extra costs or special circumstances related to a certain transaction or service.
- Transaction Fee: In many cases, merchants have to pay a credit card processing fee to the related credit card firm. To cover this additional cost, they charge the customers a credit card surcharge. This enables the merchants to improve their bottom line.
- Operating Costs: In order to cover the costs of maintaining infrastructure, paying for administrative expenses, and adhering to industry standards, businesses may also impose surcharges.
- Special Circumstances: Surcharges may also be implemented under special circumstances, for example, during peak or busy hours of goods deliveries or to overcome the challenges of providing a service.
- External Factors: Businesses may also impose surcharges due to external factors or significant fluctuations in the price of a particular item. For example, this fee is common in the fuel industry, where the price of fuel is subjected to unexpected fluctuations.
- Green Initiatives: Surcharges are also implemented when a company wishes to concentrate on lessening its impact on the environment. These are not the taxes that are gathered on behalf of the government organization. For example, any heavy-duty repair work always ends in the production of hazardous waste that cannot be disposed of anywhere. This can include getting rid of tires, waste fluid, or defective parts in order to keep the environment green. Therefore, these environmental surcharges are meant to cover the cost of disposing of these harmful waste materials at a proper location or hiring someone to do so.
- Foreign Transaction Cost: Sometimes merchants have to pay extra fees related to currency conversion or international transaction fees. Therefore, the merchants charge a foreign transaction fee. It can be used for credit card purchases made while someone is travelling or on vacation overseas, or it can be applied to online transactions where the vendor is foreign and handles the transaction in local currency.
What Is A Surcharge At A Restaurant?
A surcharge at a restaurant is an additional fee that the restaurant charges for various purposes. This charge is normally added to the total amount due and is usually noted on the menu. It is not the same as tipping; rather, it is billed separately and for a set amount. Common types of surcharges adopted by restaurants are as follows:
- Service Charge: Some restaurants would include a service charge as a percentage of the total bill, particularly for large groups or event occasions. This fee is meant to cover the costs of service, such as labour costs, training, and general hospitality.
- Tipping Surcharge: In some countries where tipping is not common, a tipping charge is added to the total bill to ensure that the staff receives a generous payment.
- Public Holiday OR Special Event Surcharge: In order to cover the costs of additional services or menu items or increased demand, restaurants may charge a fee on holidays or special events.
- Credit Card Surcharge: In order to offset the processing fee levied by the relevant financial institution, restaurants commonly impose a credit card surcharge on customers who choose to pay their bills using a credit card.
- Corkage Fee: This fee is charged in restaurants where customers are allowed to bring their own wine for a dine-in experience. The purpose is to charge for the service of serving wine, using glassware, etc.
- Ingredient OR Supply Cost Surcharge: Restaurants may apply charges in response to the rise and fall of ingredient or other supply prices. This is common in regions where the prices of goods vary unexpectedly.
Some Guidelines For The Merchants
- Merchants who wish to apply the surcharges to their transactions must be aware of the applicable rules and regulations of the state.
- Whichever kind of surcharge they decide to implement, they have to make it very apparent to the customers. It can be mentioned on the menu, point of sale receipt, or company’s website. Having the amount separately added will surely build trust and avoid surprises for the customers.
- Effective use of technology is required to compute and apply surcharges automatically.
- It is necessary to monitor how surcharges affect customers and business operations.
- It is important to fully inform the staff about this fee and its intended use so that they can explain it to customers upon asking.
- In order to maintain good customer relations, merchants must handle surcharges carefully. If they don't, customers may become dissatisfied, and there may even be legal problems.
Take Aways
The surcharge is an additional cost that is applied to credit card transactions. Merchants apply fees in various ways. It is primarily a transaction cost fee that the payment agent has imposed on the merchant. Other than this, it might be the result of government taxes, fuel adjustments, or changes in the price of raw materials.
The impact of surcharges on customers depends on how clearly the surcharges and their reasons are explained and how well businesses communicate and listen to customers’ concerns. Building trust and having transparent conversations with the customers can be helpful in applying for and introducing surcharges in the business.
FAQs
Although there are many different kinds of surcharges, the following are the main reasons you pay this charge.
- As a credit card processing fee
- Regulatory fees
- To promote alternative payment methods.
- Fuel cost, etc.
The surcharge is typically added to the credit card payment bill. To avoid it, you can pay the bill with a debit card or in cash.
It is an additional expense over the list price of goods and services. This could be an adjustment to the price of fuel, a transaction processing fee, or another kind of charge adjustment.
William Harrison
William is a consultant providing expertise in business management. He has successfully integrated POS systems into various businesses, demonstrating a passion for improving processes and offering financial advice. With a decade of experience in dealing with POS systems, payment gateways, and ATMs, he is also a passionate writer about finance and accounting.