A checkout fee, also commonly known as a merchant surcharge, is the extra cost added by stores and merchants for credit card transactions. These fees are typically to cover the merchant’s own processing fees they’re charged for processing credit card payments.

Sounds simple, right?

Well, checkout fees are not a specific dollar amount. They cannot be more than the merchant’s processing fee for the transaction and cannot exceed 4% of the total cost of the purchase, even if that number is lower than the processing fee. On average, checkout fees for the consumer are 1.5% – 4% of the cost of the total purchase, which some consumers view as an extra tax.

In terms of legality, after a 2012 lawsuit and settlement between a large group of merchants in the United States and the credit card networks, it became legal for merchants in 40 states to charge checkout fees. Checkout fees do still remain illegal in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, Texas, and Utah – though these states are allowed to give discounts for cash transactions, which basically produce the same results.

Another result of the above lawsuit is that merchants can institute a minimum purchase amount for credit card transactions up to $10. The reason for this is because the merchants usually are paying a flat fee for each transaction plus a percentage of the total transaction. For example, 10 cents per credit card payment plus 3% of the total purchase. So, a $1 credit card purchase would cost them 13% fee, but just a 4% fee on a larger $10 transaction.

Merchants also have the option of not charging a separate checkout fee and simply raising the prices of the goods or services they sell. One interesting fact is the reason why many merchants do not accept perceived exclusive credit cards is their processing fees tend to be higher than the other major card companies.

As a consumer, it is always smart to know the rules for checkout fees, so you are not taken unaware or scammed.  For example, it’s important for consumers to know that checkout fees can only be applied to credit cards. Merchants are not allowed to charge you checkout fees on debit cards, gift cards, or prepaid card transactions. Also, brick-and-mortar merchants are required to display notices at their main entrance and at the registers if they have checkout fees, and online stores must show it on their landing and checkout pages. And if you return an item for a refund, the store is required to refund the checkout fee, too.

When examining this from a merchant’s perspective, charging a checkout fee is not a greedy thing to do or a “money grab.”  

Merchants are not allowed to pass a fee along to the customer that exceeds the actual processing fee they are charged, so the merchants hypothesize they  not making money on checkout fees. In fact, if they did not charge checkout fees, they feel they would actually lose money on every credit card transaction. However, the consumer may see it in entirely a different light feeling they are being charged for the convenience of paying with a credit card verse cash.

Merchants have some ways around these checkout fees, such as, giving incentives like discounts on cash transactions, looking for potentially lower-cost credit card processing alternatives such as PayPal, Stripe, and Square, or even dabbling in accepting cryptocurrency.

At the end of the day, “consumer beware,” as the retailers are clamoring for you to cover the cost of processing your credit card purchase transactions.