Why is there a surcharge to use my card at a gas station?


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Your Business Credit with Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.

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I’m a small-business owner and if I’m not allowed to impose a surcharge when customers use cards, how can the gas station I go to do it? 

A court in California overturned the ban on surcharges, so at the moment, the ban is not enforceable. Your gas station, Arco, charges a set fee for using a debit card. 


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Dear Your Business Credit, 
So I read the article that says in California, I can’t pass
on the credit card processing fee to my customers for using their credit
card/debit card at my small business/nonprofit. So how does Arco gas get away
with charging 35 cents every time I go to the pump AND has a cheaper cash

California is killing my small business with all the fees I
have to eat! I am a nonprofit, and I really have negotiated with the credit
card companies, but I am being charged more often than not for purchases under
$20. – April

Dear April,
I’m not clear how you are running a small business that is
also a nonprofit – usually an entity is one or the other – but that doesn’t prevent
me from addressing your question.

As the California attorney general’s office explains on its website,
the state passed a law in 1985 that bans merchants from adding a surcharge if
customers pay with a credit card instead of cash. The law allowed merchants to
give customers who paid cash a discount for paying with cash, check or debit

However, in March 2015, a federal court found that law
unconstitutional and said the office of the attorney general could not enforce
it. The office of the attorney general is appealing the order but cannot
enforce this law at the moment.

In January 2018, a panel of judges from the 9th U.S. Circuit Court of Appeals agreed
the law banning surcharges was unconstitutional and made some modifications to
an injunction that blocks its enforcement. The thinking behind both courts’
decisions was that the law interferes with commercial speech and doesn’t
prevent consumer deception – the stated purpose.

What this means is that the law that bans surcharges can’t
be enforced right now, according to the attorney general’s office.

It’s worth noting that credit card companies’ rules also
apply to surcharges. Under a court settlement that took effect in January 2013,
Visa and Mastercard allow merchants to pass along a charge equal to what they
must pay to accept the card, up to 4 percent. American Express and Discover also allow
surcharges, within limits.

Charging for debit cards 

As to why you are seeing the charge at Arco, I ran your
question past Jen Lee, an attorney with offices in San Ramon and Tracy,
California, who frequently advises clients on debt-related matters and is a
co-author of “Preventing Credit Card Fraud: A Complete Guide for Everyone from
Merchants to Consumers.”

“Arco only accepts debit cards (not credit cards) and
charges 35 cents for a convenience fee on debit card transactions, which is
supposed to be clearly stated before purchase,” Lee said in an email. “There
was a class action lawsuit in Oregon a few years ago where the jury found that
the charge was not properly disclosed. The reason Arco gas tends to be cheaper
is that they limit their costs by only accepting cash, check, [and] debit.” (Arco also offers the option of paying with your mobile wallet linked to your debit

In the FAQs on
Arco’s website, the company provides its own explanation of why there is a 35-cent charge on PIN debit cards:

“There are costs involved with accepting and processing
payment cards,” the company notes. “There is a 35-cent processing fee for debit
cards only, in addition to any fees your bank may charge for this service. For
all other transactions there are no additional fees. This allows our consumers
the flexibility of using a debit card while still providing value that our
consumers expect. This 35 cent convenience fee is the amount Arco and ampm charge for debit transactions.” Ampm is a convenience store chain with branches
in California and other states.

Passing on processing costs to customers

As to whether you should add processing fees to your own
transactions, Lee noted, “The issue with the January, 2018 ruling from the 9th
Circuit is that it technically only applies to the five businesses that were
the original plaintiffs, although if a business is using the same structure,
that would be fairly safe.”

The emphasis, Lee notes, is on whether the consumer is
misled or the practice could be a considered an unfair business practice if a
merchant tries to hide the fee.

“As far as advice goes, a merchant in California can
surcharge for credit cards, but it should be very apparent that there is a cost
for paying with a credit card,” Lee said in her email. “Avoiding anything that
could be viewed as deceiving, misleading, or unfairly impacting consumers is
key. I also recommend only passing on the actual surcharge cost and not making
any sort of profit on the surcharge. (For example, charging 4 percent when the
actual cost for processing is 2.29 percent is not advised).”

Tip: Often it is better to bake the cost of doing business into your pricing than to add small charges that may seem like you are nickel and diming customers.

Being crystal clear about any surcharge you are imposing is
also essential, she notes.

“For communicating with customers, including signs and price
stickers, the price should be the same for everyone (single-sticker price
model) with a very conspicuous notice that there is a credit card surcharge
that will be added,” Lee wrote.

Given how annoyed you are about the 35 cent surcharge, I
would think carefully about whether your customers will feel the same way.
Often it is better to bake the cost of doing business into your pricing than to
add small charges that may seem like you are nickel and diming customers.

As to your frustration with paying that 35 cents extra, the
best way around this is to go to a gas station that charges the same price for
all gas purchases (but avoiding those that jack up the price for both or to use
cash or a debit card when you go to the pump).

Offset the surcharge with a rewards card

You may want to consider getting a business credit card that
offers you discounts on gas, as well, to offset any charges you are paying. One
example is the Bank of America Business Advantage Cash Rewards Mastercard. It gives you 3 percent cash back on purchases at gas stations. Fleet
may also offer a discount. The Fuelman Commercial Advantage Credit Card,
for instance, enables you to save up to 10 cents per gallon.   

I’d also suggest you get a mileage tracker for your phone,
to make sure you are capturing all of the miles you are logging so you can get
the proper mileage deduction when you file your taxes. I use one called
Everlance that has worked very well.

It’s hard to avoid certain costs, whether you are running a
business or a nonprofit, but taking advantage of any discounts and deductions
available to you can minimize the pain of paying for them.

See related: When is it OK to add a surcharge? 

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