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Charging more when using a debit/credit card?

I have my pick of nearly 20 Chinese places that will deliver to my house. Sometimes, my choices become limited because I have no cash in the house and many do not accept debit/credit cards. That's fine. However, some of the ones that accept credit cards inform me that my dinner will cost more if I use my card. I am assuming it has something to do with charging tax. This does not sound legal at all. Can someone explain to me why they do this and if it is actually legal???? It seems risky to only charge tax to those paying with credit cards. Can there be another reason - legal or not? I usually end up saying, "Yeah, that's fine", because the difference is not so great that it matters, but it still irks me and doesn't seem kosher.

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  1. Credit card companies charge a percentage of the transaction in addition to a flat fee to the vendor. Companies like American Express are usually the most expensive and virtually all are more expensive for lower-$ transactions (de to the flat-fee + %, the % paid to the CC company of the overall transaction is higher for smaller transactions). So whether you look at it as getting a discount for using cash or paying a surcharge for credit card the vendor has a right to charge what it wants. There are also plenty of places that have a minimum transaction price for credit card use.

    It may not seem like a lot but if you're paying the credit card company 2%-5% of every transaction for the privilege of serving their customers, it adds up. Especially for a small business.

    4 Replies
    1. re: ferret

      I completely understand merchant services fees. But, then why doesn't EVERY business do it? If there were not some sort of legal or contractual technicality attached to it, wouldn't every business owner charge more to cover the costs of transaction fees? From what I understand, it is patently NOT legal to issue a surcharge to customers paying with cards vs. cash, although I have no doubt there are loopholes for merchants to get around this law (likely by not calling it a surcharge). And even it is is perfectly legal (or okay'd by Visa, Mastercard, or whatever transaction processing company the business owner is dealing with) shouldn't the menu clearly state "cash" and "credit" prices? Merchant transaction fees or not, it still seems rather fishy.

      1. re: Justpaula

        Regardless, it does cost them more money, and the practice is normal. As long as they have a sign when you enter and/or at the register I don't see the problem. As per the op, they advised on the phone it costs more, so it wasn't a surprise when they arrived at their house.

        Asian restaurants typically have a far smaller profit margin on their food, so any fees hit them more. I know Amex fees were much larger when my parents ran their busines (not food related) so they chose not to accept Amex.

        If it makes you feel better, they could increase all menu items by 50 cents and that would cover it, but then people paying cash would be paying for your use of the cards, I'd rather keep it the way it is.

        1. re: Justpaula

          It's all about volume of business. Larger operations pay a lower surcharge and may be willing to absorb it. There are Asian take-out places near my office where you can easily buy lunch for under $5. They all have posted minimums for credit card purchases.

          You're using a card for your convenience, not theirs, so why complain?

          1. re: Justpaula

            "But, then why doesn't EVERY business do it?"

            Gas stations come to mind.

        2. Completely normal, as per ferret's explanation. It costs them money to process a credit card purchase and so they charge you for it. Nothing to do with taxes or illegitimate practices.

          11 Replies
          1. re: TeRReT

            Normal or not, right or wrong, it's illegal.

            1. re: DPGood

              Where I am from debit card surcharges are completely legal.

              Credit card surcharges are a less clear issue.

                1. re: DPGood

                  Normal or not, right or wrong, it's illegal.


                  Please explain how, or why, it is illegal. A cite to a statute or law would be helpful.

                  [Edited on to change "legal" to "illegal"]

                  1. re: ipsedixit

                    Here you go: http://www.merchantcouncil.org/mercha...

                    "You may, however, offer a discount for cash or another form of payment (e.g., proprietary card or gift certificate) provided that the offer is clearly disclosed to customers and the cash price is presented as a discount from the standard price charged for all other forms of payment"

                    1. re: rockandroller1

                      Uh, that says it *is* legal.

                      What am I missing?

                      Also, nothing in that link speaks to legality -- that's simply a contractual agreement between bank and merchant. In other words, they are just contractual terms.

                      When we talk about legality -- or illegality -- it usually has to do with, you know, things like the law.

                      1. re: ipsedixit

                        I think you mistakenly wrote: "Please explain how, or why, it is legal." I assume you meant to write "Illegal".

                        1. re: carolinadawg

                          Yes, you're right. I fixed it up thread.


                          1. re: carolinadawg

                            Yes, that's what I posted it in response to.

                  2. re: TeRReT

                    Then I guess the explanation then for why hardly any other business do this is that they don't want to send customers away at all. Which, in these days of people using cards to make purchases more often than cash, it seems imprudent to turn customers away because of their preferred method of payment. Especially considering that there are over a dozen other places for me to order Chinese food with my card at no extra cost. :)

                    However, I am still a bit hung up on the law (Federal Truth in Lending Act) that definitely says it is illegal to issue a surcharge to customers who pay with a card instead of cash. What then,especially in a restaurant setting, would be classified as a surcharge - if charging customers more money for their food if they pay with a card is not one? *Still* seems fishy!

                    1. re: Justpaula

                      Its not as common in places not in the food industry because the food industry has a far smaller profit margin, and in the food industry the places practicing this system likely make a lot less money per customer then the rest.

                  3. Well, I appreciate all of your responses and after reading them I decided to check my receipt for what the "transaction fee charge" actually was. The itemized receipt indicated that the prices I was charged for each item was the same as the prices on the menu. The computer printed receipt (which has my debit card number printed on it) indicates a subtotal amount, $0.00 for TAX, and a total amount. The printed total is crossed out with pen and underneath it is a new total. My handy dandy calculator tells me the handwritten total = (crossed out) printed subtotal + 8.75% NYC tax. What do we make of this???? Anyone able to convince me the advisement that I would pay more to this proprietor for using my card is still legal?

                    Maybe if I were charged 2, 3, or even 5 percent more, I may find the "transaction fee" defense plausible, but now that I did the math and see it is 8.75%, the equivalent of NYC sales tax, I am even more inclined to think this can't be appropriate.

                    4 Replies
                    1. re: Justpaula

                      Whether it is the law, not the law, grey area or not, in general the practice does not bother me.

                      I understand why they do it, its always restaurants that don't make much money, places that are very reasonably priced. I prefer not to pay any surcharges, so I use cash. Provided there is a sign at the register or on the door, or on the menu, or if they tell you when ordering on the phone then it is fine by me. As long as you have the means to know -before- you order your food then it doesn't bother me.

                      Many laws in this world are either ignored and the penalties are far and few between, and they stay this way, or the laws eventually change because they should, and are just slow to change. People J-walk all the time, people speed all the time, people do many things that they probably shouldn't but generally don't bother me. I am not going to chase down every illegal act just because its "illegal"

                      If the restaurant is truly doing some sort of shady practice, like adjusting the tax amount, or hand writing things on receipts or something that is obviously wrong, then perhaps I'd take issue with it. But as long as I knew in advance that there was a service charge, I am fine.

                      I know in Canada, it isn't illegal to surcharge debit cards, and that there is a debate and slow movement towards making it legal to surcharge credit cards as well. Whether that happens or not, whether it remains illegal or not, if a restaurant doesn't make enough profit on a dish, and has to pay for credit card use, they can either markup the entire menu to recover the fees, or they can charge just the credit card users. I would prefer not to pay for other people using credit cards, and much prefer the surcharge for it.

                      Maybe some places are charging too much, maybe you can talk to their management, maybe they could make it 3-5 percent of the bill so that its only covering exactly the fee, maybe there is a better solution. In the meantime I simply use cash and if I don't have it available I don't mind paying the usual $1 or $2 service fee periodically.

                      I didn't know all the details in your OP, only the basic question which obviously I don't mind service charges. If you enjoy the food, you could try talking to the manager or owner and see if they can charge or more reasonable fee, or maybe you could find out why the set the fee at what they do, but I wouldn't expect them to eliminate it completely. Otherwise I'd try somewhere else or try to have cash obviously.

                      Some restaurants just incorporate these fees into the equation of costs when they price their menus, other places try to keep the price of the menu very very cheap and hope most people use cash, or only accept cash, some give a surcharge as most people would end up paying cash but the odd person wants to use credit card.

                      1. re: Justpaula

                        Use this example:

                        If they pay 25 cents + 2% (just an example, no idea what they really pay) for each transaction the percentage of the sale obviously increases as the total transaction drops.

                        On $100, it's 2.25%
                        On $10, it's 4.5%
                        On $5, it's 7%

                        So lots of small transactions kill them on fees.

                        I have a friend who owns a small business and is upset with American Express' "Small Business Saturday" marketing campaign, not for the message that small businesses should be supported but because American Express has the highest "tax" on small businesses of any major credit card. She gets killed on small transactions with Amex but because of her location customers expect her to accept Amex as well as all other cards.

                        1. re: Justpaula

                          "What do we make of this????"

                          What I make of this is that the restaurant's computer isn't programmed to add the tax, so they do it manually. I think its the tax thats being added on, not a fee for using a credit card.

                          1. re: carolinadawg

                            Thanks! That definitely makes sense, although I am curious why it isn't programmed to include tax. Next time I will make sure to pay with cash and see what happens on the receipt. I am definitely not going to complain about not always having to pay tax, because, hey, that is a couple of bucks in my pocket, but *shouldn't* I always pay tax??? I never thought about it before but I am now guessing that many of the chinese take-out places at which I have paid cash, did not charge me tax. How the heck do they get away with this?

                        2. it is not a tax, but it is their cost that they are passing on to you, they have to pay the cc company a fee when you use a card (a convenience to you, but not a free one).

                          you see, there is no free lunch.

                          ba dum dum.

                          1 Reply
                          1. re: alkapal

                            That is totally possible. I guess I just find it intriguing that the "cost" they are passing on to me to use a CC is 8.75% of my subtotal. 8.75% is the tax rate here. And from what other posters have explained, 8.75% is probably more than double the typical transaction fee that they are being charged by their merchant services company. I don't really care about paying it, it was less than $5 last night (embarrassed to add that it was less than $5 several days ago too and it didn't stop me from calling them again - twice in one week is a great, great anomaly!) , and I more often use cash anyway, but it just doesn't sound right and my curiosity gets the best of me.

                          2. I don't have any sources at hand to cite, but I believe one of the "benefits" of the recent credit-card/banking reforms was to allow merchants to offer a discount for cash payments, or a surcharge for credit card payments. Prior to this "reform" the credit card mechants or the credit card payment processors included in their merchant agreements a prohibition on offering different prices for cash versus credit cards. Then again, my memory may be false and the option of charging different prices may only apply to cash versus debit. I'm sure another chowhound could provide the absolute facts. But I'm fairly certain that different prices for different payment options is now allowed for one reason or another.

                            1. The restaurant isn't charging more for using a credit/debit card, they are giving a discount for using cash, which is quite legal.

                              1. I agree, it's legal here (I think it varies by state) and more and more places are doing it, as they are fed up with or cannot afford the processing fees by the credit cards, particularly if they are very small businesses. I would think larger restaurants with higher prices and more profit are marking up their prices accordingly to cover it so they are still making a profit even when people use a card, and so you don't know or care that you are paying more. I disagree with the previous poster who said he would rather not have a surcharge and pay with cash. I would rather there be one cost for everything and whatever the intricacies of what they charge and why be worked out in the cost on the menu, whether it's credit card fees, whether a vegetarian dish is more expensive than a dish with meat (or vice versa), or whatever other reasons.

                                7 Replies
                                1. re: rockandroller1

                                  Its fine for most restaurants to spread the cost in the menu, but when people want the cheapest food possible, the restaurants that charge even 50 cents more for the same item as another restaurant with a credit card surcharge, then it could mean the end of that business. For a particular type of restaurant, being as cheap as possible, and as cheap as the competition are what keeps them in business. I'm talking about places where I can get an entire lunch for between $4-$7, there is enough of a difference between $4 and $4.50-$5.00 that people might go elsewhere. And how many people are actually using a credit card for food that is $5-$10? Probably a lot less then meals that are $20+, so now you're spreading credit card cost for potentially 1 credit card purchase a week, why not just charge that credit card user and let everyone else pay the lesser amount?

                                  1. re: TeRReT

                                    Yes, I suspect that this occurs in places that attract business by being cheaper than the average meal, and have a lot of people buying low cost meals. A Chinese places with a $4 lunch special is going to hit both of those.

                                    So a place can choose between not accepting credit cards at all, accepting them but charging extra, raising prices to cover the average of the fee, or going out of business.

                                    1. re: TeRReT

                                      I just disagree with you. Most restaurants are not going out of business because their prices are too high, or because they raised prices by 50 cents, certainly. Now, different markets may present a different story. In a place like NYC, where there could be a dozen similar places within 1 block to get that same cuisine, sure. But in most of the rest of the parts of the country where there is not that kind of density of restaurants and patrons, it's not going to be that big of a deal. And there are plenty of places already doing this who do not charge a cc surcharge that are plenty successful, so that negates your argument. JMO.

                                      1. re: rockandroller1

                                        And there's plenty of restaurants that do a surcharge or discount for cash, thats the joy of dozens of places on one block. I can chose to eat at places where I pay less because I use cash, and you can chose to eat at places that don't charge a cc surcharge. But don't go restaurants that do surcharge and try to tell them they can't or shouldn't, they do and you can either pay it or chose to eat elsewhere since there are plenty of restaurants already doing this.

                                        1. re: TeRReT

                                          Oh I don't do that! I patronize the restaurants I want to and abide by their suggested rules. I view the ability to use a card as a convenience, and if I have to pay a little more to do so, I do. I wish it weren't like that, but in no way do I tell the restaurants they shouldn't do that. I would be happy to join with them and protest to the banks to stop these fees, but I do not blame them for trying to get the fees back. I just wish, as someone else said, that either everyone did it or no one did, uniformly. I don't want to see it and have to make a choice. Just charge 1 price.

                                        2. re: rockandroller1

                                          And its not as simple as just suddenly raising the prices to offset. How much do you raise? The credit card surcharge is also likely used to curb credit card use. What if only 10 people used a credit card per week because most people didn't pay the surcharge. Then the owners raise prices, and lose the surcharge. They pay money to reprint all menus, to reconfigure computers and anything else. Next week comes, suddenly 100 people decide to use credit cards because there is no surcharge.

                                          You aren't just covering the 10 people in the new food price, you have to anticipate potential increase in credit card use, plus reprinting menus and other expenses more then once, plus then there would be a lot more balancing at the end of the night.

                                          I'm sure the family run restaurant doesn't want anymore work or any more complications and the curbed credit card use with surcharge to cover the cost suits them just fine.

                                          1. re: TeRReT

                                            Millions of restaurants across the country seem to have figured out how to build in enough profit to account for the ups and downs of credit vs cash business and still survive. I think you are making it moer complicated than necessary.

                                    2. I don't like it. Either accept credit cards and charge everyone the same or don't accept them. I would be pretty pissed if I expected to pay with a cc and saw an unexpcted surcharge on the bill. I don't carry cash and I hate paying Atm fees.
                                      one restaurant here does it the best. They have a board when you walk in that says "we spent $5500 in cc fees last month. Please help us out by using cash. Use our no fee Atm."

                                      6 Replies
                                      1. re: viperlush

                                        I don't think anyone is charging an additional fee for using a cc/dc, they are simply offering a discount for using cash.

                                        1. re: carolinadawg

                                          It does not matter if you call it a surcharge or discount they are still charging people different prices for the same thing.

                                          1. re: viperlush

                                            True, but the reason is that the restaurant's costs are different, depending on how the customer pays, so its not an arbitrary thing.

                                            Do you get upset when a restaurant has a special on meatloaf on Monday for $5, but every other day it costs $6?

                                            1. re: carolinadawg

                                              So then either set a minimum or don't accept ccs.

                                              Why would a special or discounted item bother me? The price is the same for everyone.

                                              1. re: viperlush

                                                Its not the same if you have the meatloaf special on Monday and I pay more on Tuesday.

                                                1. re: viperlush

                                                  How much should the minimum be at a restaurant with $5 lunches? $20? How many people will use credit card then? There likely is a monthly or annual fee on top of the percent fee per charge, so they can't have an unreasonable minimum, but if its $5 its the same as having no minimum.

                                                  The price is the exact same for you as it is for me, as long as you pay by a means that doesn't cost the restaurant more money. If you want it to cost the same, bring cash, we're talking about restaurants that advertise the charge, not ones that don't and surprise you, if you know ahead of time it will cost extra, bring the cash.