According to Merchant Council, most business owners have to pay an additional fee for each completed credit card transaction. As this can become costly over time, some merchants are choosing to pass the fee on to their customers.

History

Prior to 1984, the Truth in Lending Act passed a law that prohibited additional surcharges from companies to credit card holders. After 1984, that ban expired and no new legislation was passed. This allows merchants to charge an additional fee equal to their "discount" or processing fee charged by the bank for each completed credit card transaction. According to Financial Guide, merchants pay an average discount or processing fee of 1.5 percent to 5 percent of the total purchase amount. The fee also can be as high as 8 percent to 10 percent of the total amount.

Function

The discount or processing fee charged to merchants is what they pay to service providers to process credit card transactions. Fees and rates vary by provider. However, the processing fee is standard with any merchant account. Small businesses that lack credit card volume can lose money paying merchant fees, so they may incorporate a convenience charge to their customers who pay with credit cards.

Considerations

While it is legal for merchants to pass a credit card processing fee on to their customers, they cannot do the same for cash or personal check purchases. In fact, many merchants offer consumers a discount when paying in cash.