Credit Card Surcharging: What Your Restaurant Needs to Know

As a restaurant owner, your bottom line is top of mind.

In an industry facing historic inflation and fluctuating costs, it can be a challenge to consistently and accurately estimate expenses.

Many small business owners, including restaurateurs, have likely considered new and unique ways to save money or influence guest behavior to keep more money in their pockets. For example, restaurants may encourage guests to order directly from their first-party online ordering platform instead of ordering through third-party integrations to save on food delivery commissions some third parties charge on each order.

But one common method can be trickier than meets the eye: credit card surcharges.

In this article, we’ll dive into what credit card surcharges are, whether it’s legal for restaurants to implement surcharging for credit card payments, and the compliant surcharging options that are available to your restaurant. 

What is credit card surcharging?

A credit card surcharge is any fee added to a guest’s bill for their use of a credit card instead of another form of payment, such as cash or check. Restaurants may consider implementing credit card surcharging as a means to recoup some of the merchant’s processing costs for credit card payments.

It’s important to note that under no circumstances may a debit card or prepaid card, such as a gift card, be surcharged.

Are credit card surcharges legal?

The legality of implementing credit card surcharges depends on the jurisdiction in which your restaurant operates. Laws and regulations regarding surcharging vary between countries, states, and even local municipalities. It's essential to consult your area's specific laws and regulations to determine whether credit card surcharging is allowed and under what conditions.

Some states have laws that prohibit businesses from implementing surcharges for customers who pay with credit cards. As of June 2024, the following states have laws that prohibit surcharging: Connecticut, Maine, and Massachusetts. Additionally, merchants located in Colorado may be subject to limitations on the rate at which they surcharge credit cards.

However, it’s not just the states preventing credit card surcharges; it’s often the credit card companies that prohibit charging guests who use a credit card more money. If your restaurant is located in a state where there is no current law prohibiting or restricting surcharges, and once you take any compliance steps required under applicable laws, it’s important to take a close look at your service agreements with card companies such as Visa, Mastercard, American Express, Discover, and more to review their surcharging rules before implementing any changes to your payment policies.

Keep in mind that 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.

What are the disadvantages of surcharging?

There are guidelines that a restaurant must follow in order to implement credit card surcharges. Clear and conspicuous signage must be posted at the point of entry (e.g., the outside face of the restaurant, entryway, host desk, waiting area, etc.) as well as at the point of sale (POS) or point of interaction (e.g., next to the cash register, on the menu, at the ordering kiosk, etc. as well as on the online ordering website, if applicable). The signage 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 other means (such as cash or debit card) before the surcharge is applied to their ticket. Different or additional disclosure requirements may apply in your state.

And these guidelines are just scratching the surface. Compliance also requires you to apply surcharges to all card networks equally, notify some card networks 30 days prior to surcharging, and abide by caps to surcharging. This list is not exhaustive, and additional requirements may apply. It is imperative that you consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.

The value of Toast Credit Card Surcharging

If you decide that you’d like to move forward with implementing surcharging, Toast can help. Toast Credit Card Surcharging** is designed to automatically detect if a credit card is being used; it applies an automatic surcharging fee to credit transactions to help ensure that no debit cards are surcharged. Additionally, Toast also provides notification where required for card networks 30 days in advance of your intent to surcharge. Toast also supplies customers with printable signage templates and disclosure on guest-facing displays to educate guests on the surcharge and their payment options. Displaying proper signage is a compliance requirement.*

Here’s where customers find value in our surcharging solution today:

• Help offset credit card processing costs 
  • Regain control of your costs by passing along a compliant processing fee only to guests choosing to pay by credit card for card-present transactions.
• Automation means efficiency & less training 
  • Toastʼs solution is designed to automatically distinguish between credit and debit/prepaid cards so you enjoy less training and fewer discussions about fees tableside.
• Manage your card network compliance 
  • Let Toast provide you with the tools you need to keep your tech compliant to help avoid costly fines from card brands. 
• Provide transparency & choice to guests 
  • Toast makes it easy to provide your guests with the information and options they need when choosing how to pay.

Learn more about Toast’s surcharging product and how to implement it here.

Final thoughts

While payment processing fees can represent a large expense for restaurants, they pale in comparison to the fines that result from non-compliance with card brand rules and consumer protection.

If you decide to implement surcharge fees for credit card transactions, be sure to do your homework. Ensure that you follow the guidance of your point of sale provider, payment processor, state laws, and merchant agreements with credit card companies to avoid any expensive surprises or angry guests.

*Different or additional disclosure requirements may apply under laws applicable at your location.

**Eligibility requirements apply. Merchants in states where surcharging is prohibited - including Connecticut, Maine, Massachusetts, and Oklahoma - are not eligible for Toast’s Credit Card Surcharging solution. Merchants that have a direct Card Acceptance Agreement with American Express are not eligible for Toast’s Credit Card Surcharging functionality. These agreements include provisions governing the merchant’s surcharging of American Express cards. Certain merchants that participate in American Express’ OptBlue program are not eligible for Toast’s Credit Card surcharging functionality. Credit Card Surcharging is currently available only for POS and Handheld transactions (including keyed transactions). The development, release and timing of any products, features or functionality remain at the sole discretion of Toast, and are subject to change.