Credit card surcharge in California: rules for restaurants

California’s ban on credit card surcharges, Civil Code 1748.1, is still law, but a federal appeals court held in 2018 that it could not be enforced against the businesses that sued, and the Attorney General says he will generally apply that ruling to merchants similarly situated to those businesses. Visa caps a surcharge at 3% or your card cost, whichever is lower, and Mastercard at 4% or your cost. Neither allows one on debit or prepaid cards, and both require a notice to guests before they pay and the surcharge on the receipt.

This post is a summary of public rules, not legal advice. Check with your lawyer before you add a fee.

Is it legal to charge a credit card fee in California?

Civil Code 1748.1, passed in 1985, says a retailer may not add a surcharge when a customer pays by credit card instead of cash, check or similar means. It lets you give a discount for paying by cash, check or other means that are not a credit card, as long as every buyer is offered that discount.

In January 2018, the Ninth Circuit held in Italian Colors v. Becerra that the law could not be enforced against the businesses that brought the case. The Attorney General’s page says his office will “generally apply” that decision to merchants similarly situated to those businesses. The statute itself has not been repealed. Its text still says that a cardholder who was willfully surcharged, and not repaid within 30 days of a written demand by certified mail, can recover three times their actual damages plus attorney’s fees and costs, in small claims court if the amount fits or in another court.

Either way, the Attorney General says merchants may not mislead customers, for example by advertising a lower price than they charge or hiding differences between credit, debit and cash prices.

What do Visa and Mastercard allow?

The card networks have their own rules, and they apply on top of state law.

Visa says the processor of a merchant caught surcharging improperly may be fined $1,000 at once, and that outside auditors mystery shop merchants every year.

How much can a 3% surcharge recover on Square?

Square publishes its standard card rates, so you can work out the card cost of a typical order. On Square Free ($0 a month) a card tapped, dipped or swiped costs 2.6% + 15¢, and an online card payment costs 3.3% + 30¢. On Square Plus ($49) and Premium ($149 a month per location) online payments cost 2.9% + 30¢, and in person 2.5% + 15¢ and 2.4% + 15¢. The table uses Square Free, and the last column is the largest surcharge Visa’s cap allows at those rates.

Because of the 15¢ or 30¢ on every order, small checks cost more as a share. On in-person orders over $37.50, a flat 3% surcharge is more than Square Free charges you for the card, and Visa does not allow that. On Square Plus a $40 order in person costs $1.15, or 2.88%.

A surcharge covers only credit cards, so even a full 3% leaves the cost of every debit and prepaid card with you.

Do you have to show the surcharge on the menu?

California’s Honest Pricing Law (SB 478) makes most businesses include every mandatory fee in the listed price. The Attorney General’s FAQ says a card fee is generally not mandatory if a customer can avoid it by paying another way, such as cash. If a business takes only cards, the card fee is mandatory and belongs in the price.

Under SB 1524, mandatory fees charged by restaurants and bars are exempt from SB 478 as long as the fee is “clearly and conspicuously displayed wherever prices are shown.” Read together, those two answers suggest that a card fee on an ordering page that takes only cards counts as mandatory, so a restaurant would need to show it clearly wherever prices appear on that page. The network notices apply on top of either rule. Our post on restaurant service fees covers SB 478 and SB 1524 in more detail.

How does a cash discount work instead?

Civil Code 1748.1 has always allowed a discount for paying without a credit card, offered to all buyers. Visa’s rules allow it too, with two conditions: your menu shows either the card price alone or the card and cash prices side by side for each item, and the card total on the final bill is the sum of those listed prices, not a fee added at the end. Visa says a fee added at checkout for paying by card may be treated as a surcharge under its surcharge rules.

A 3% cash discount means pricing the menu at the card price ($41.20 for what was a $40 check) and taking 3% off for cash ($39.96). If you list only the card price, guests see one price on the menu. Set up this way, Visa treats it as a discount offer, not a surcharge.

Should you add a surcharge or raise prices?

A surcharge makes sense if most of your guests pay with credit cards, your lawyer is comfortable with how California’s law applies to you, and you are ready to set it up the way Visa and Mastercard require: 30 days’ notice to your processor, notices at the door and at the register, a separate line on every receipt, nothing on debit, and a rate no higher than your cost.

Raising menu prices 3% brings in 3% more from every guest, debit and cash included, with nothing extra to disclose and no notice to your processor.

A cash discount also covers debit cards, since debit guests pay the card price. It needs card-only or side-by-side menu prices, and it costs you the 3% on every cash check.

Where Expresso fits

Expresso is online ordering for independent restaurants: pickup, curbside, scheduled orders and QR code ordering at the table, with no monthly fee and no contract. The kitchen tablet is $149 once. Card processing is 3.2% + 30¢ per order and comes out of your payout, and guests pay a 2.5% convenience fee on the food subtotal, shown at checkout with the tax. On a $40 order with $3.30 of tax and no tip, the guest pays a $1.00 fee and your processing is $1.72 (3.2% of $44.30, plus 30¢).

Expresso is not a POS, so a surcharge or cash discount at your counter is set on your POS and card terminal. Our Toast vs Square and online ordering systems posts list what those systems charge you for cards.