In recent years, many restaurateurs have begun considering innovative ways to save money and influence guest behavior to keep more money in their pockets. One such example is encouraging customers to order directly instead of ordering through third-party platforms.
Credit card surcharges is another method that’s been garnering attention. In this blog post, we will explain what credit card surcharges are, whether it is legal for restaurants to add a surcharge for credit card payments, and the pros and cons of this practice.
What is a Credit Card Surcharge?
A credit card surcharge is any fee added to a customer’s bill for their use of a credit card instead of cash. Many businesses implement credit card surcharging as a means of recouping some of their processing costs for credit card payments. It’s important to mention that restaurants may not, under any circumstance, add a surcharge to a customer’s debit card or a gift card.
Is Credit Card Surcharging Legal?
The legality of credit card surcharging varies between jurisdictions, countries, states, and local municipalities, so it's essential to consult your area's laws and regulations to determine whether credit card surcharging is allowed and under what conditions.
As of June 2024, some states, including Connecticut, Maine, and Massachusetts, have laws prohibiting businesses from implementing surcharges for customers who pay with credit cards. Additionally, merchants in the state of Colorado may be subject to limitations on surcharging rates.
But it’s not just certain states that prevent the implementation of credit card surcharges. Some credit card companies also prohibit charging guests a surcharge. Therefore, if your restaurant is located in a state where there are no specific laws prohibiting or restricting surcharges, it’s important to take a close look at your service agreements with card companies to review their surcharging rules before implementing any changes to your payment policies.
If your restaurant adds an additional fee to guest bills for using a payment card in a way that does not comply with each network’s surcharging rules, it may be deemed non-compliant, even if you attempt to mask the fee by calling it something else, and you may face consequences.
While payment processing fees can represent a large expense, these fees could pale in comparison to fines that could result from non-compliance, so it’s important to do your homework.
Pros and Cons of Credit Card Surcharging
Implementing a credit card surcharge at your restaurant comes with its share of advantages and disadvantages. Understanding the pros and cons of credit card surcharging can help you make an informed decision about whether or not to adopt this practice.
Pros
Reduced Expenses: Credit card surcharges help offset the cost of processing fees, which can range from 1.5 to 3.5% of each transaction.
Improved Profit Margins: By passing on the credit card processing fees to customers, your profit margins may improve without increasing menu prices.
Eliminates Fees: Cash payments eliminate credit card processing fees entirely.
Reduced Disputes and Chargebacks: Cash transactions avoid potential disputes and chargebacks associated with credit card usage.
Cons
Negative Customer Perceptions: Customers may perceive credit card surcharges as unfair or inconvenient, leading to dissatisfaction and potential loss of repeat business.
Competitive Disadvantage: If other restaurants in the area do not impose credit card surcharges, you may lose customers to the competition.
Operational Complexity: Ensuring that your POS system applies and displays surcharges accurately and clearly can be a technical challenge, requiring additional setup and maintenance processes.
Risks of Drop in Sales: Customers who are unhappy with surcharges might spend less or choose to stop patronizing your restaurant.
Dip in Customer Loyalty: Loyal customers might be discouraged by surcharges, affecting their long-term relationship with your restaurant. This can show up in negative comments in your reviews and negatively impact your digital ratings.
11 Tips for Staying Compliant with Credit Card Surcharging Rules
There are guidelines that a restaurant must follow in order to implement credit card surcharges including clear and conspicuous communication such as signage posted at the point of entry, POS system, or point of interaction (cash register, menu, ordering kiosk), and/or a disclaimer on the website.
Communications must include a statement that the surcharge only applies to credit cards, along with the specific credit card surcharge percentage. Restaurant guests must be given the opportunity to opt out of their order or pay by cash or debit card before the surcharge is applied. Additional disclosure requirements may apply in your locality or state.
These guidelines are far from all-inclusive. Compliance also requires restaurants to apply surcharges to all card networks equally and abide by caps to surcharging.
Note: It’s imperative to consult with a professional for advice specific to your situation.
Know the Law: Credit card surcharges are regulated differently depending on your location. In some regions, surcharges are allowed, while in others, they are prohibited or limited. Make sure you understand and comply with local regulations.
Review Credit Card Agreements: Review your agreements with credit card companies. Some may have specific rules about surcharges that you need to follow.
Establish a clear policy for surcharges: Decide if you will pass the entire cost or only a portion of it to customers.
Clear Communication: Inform your customers about surcharges upfront through signage at the entrance, notices on menus, or verbally by staff.
Train Your Staff: Conduct staff training sessions to explain the reasons behind the surcharge and how to clearly and courteously explain them to guests.
Optimize POS Systems: Make sure that your point-of-sale (POS) system has the ability to apply surcharges automatically and can clearly display them on receipts.
Clear Communication: Make sure that customers are well-informed about surcharges upfront through signage, menu notices, and staff explanations.
Incentivize Cash Payments: Offer discounts or incentives for cash payments to encourage customers to choose this option without feeling penalized.
Consider Alternatives:
Menu Price Adjustment: Evaluate whether it would be beneficial to adjust your menu prices to cover credit card fees instead of adding a surcharge. This allows you to avoid adding direct surcharges to the customer ticket, while still covering your costs.
General Service Fee: Consider adding a general service fee to cover various operational costs, including credit card fees.
10. Monitor Feedback: Regularly gather and review customer feedback on surcharges and be prepared to adjust your policy if it negatively impacts customer satisfaction and sales.
11. Regular Review: Regularly review your surcharge policy to ensure it remains compliant with regulations and competitive with other local businesses.
Take Away
As a restaurant operator, your bottom line is top of mind. By following the steps above and weighing the pros and cons, you can effectively manage credit card surcharges at your restaurant, ensure compliance with legal requirements, maintain good customer relations, and make a well-informed decision about whether to implement credit card surcharges at your restaurant.
By Eileen Strauss
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