Don’t conflate surcharges and ‘junk’ fees

Jonathan Razi is a payments industry entrepreneur and lawyer, based in Chicago. Keturah Taylor is a partner at the law firm Cozen O’Connor, based in Washington, DC and Portland, Oregon.

Many payments companies are aware that state lawmakers’ diverging prescriptions for credit card surcharging have increased operational complexity in recent years.

What casual observers in the space may not yet realize, though, is that a separate effort to ban so-called “junk fees” at both federal and state levels is creating a new source of confusion and potential risk for merchants and processors using surcharging.

New laws, rules, and regulations prohibiting “junk fees” or “drip pricing” generally require inclusion of any mandatory fees in the initial price that is advertised.

California’s “Honest Pricing Law” was the first such law, which took effect in July 2024 and — as described by the California Office of Attorney General (OAG) — made it “illegal for most businesses to advertise or list a price for a good or service that does not include all required fees or charges other than certain government taxes and shipping costs.”

The Federal Trade Commission then issued its Rule on Unfair or Deceptive Fees (effective May 12, 2025), which applies to the sale of live-event tickets and short-term lodging. A number of other states followed suit during the 2025 legislative sessions, with some enacting mandatory fee laws of general applicability, and others considering industry- or product-specific laws similar to the FTC rule.  

To be clear, credit card surcharges — when properly implemented — are not mandatory but optional, because consumers are given the choice to pay by credit card or another method, such as debit card or ACH, that does not incur a surcharge. Thus, credit card surcharges are exempt from mandatory fee laws.

Most federal and state regulators understand and have clarified that mandatory fee laws do not apply to optional credit card surcharges.

For example, the FTC’s FAQs regarding its Rule on Unfair or Deceptive Fees clarify that if another payment method is available, then “using [a] payment method that incurs a fee is optional, and the business need not include the fee in the total price.” The California and Minnesota OAGs have issued FAQs containing similar clarifications.

Unfortunately, confusion prevails despite this regulatory guidance. Many industry commentators and online search results incorrectly state that mandatory fee laws prohibit credit card surcharging.

Further, plaintiffs’ attorneys are misconstruing these laws in efforts to recover potentially significant monetary relief under mandatory fee laws and related consumer protection statutes. For example, a putative class action lawsuit filed in July 2025, Baregi v. Kaskaid Hospitality, Inc., alleges that a restaurant group violated the Minnesota mandatory fee law by imposing a 2.5% credit card surcharge.

Even though the facts alleged demonstrate that the surcharge was optional — debit cards and cash can be used with no fee — and adequately disclosed, the lawsuit repeatedly describes the surcharge as “mandatory” and “unavoidable,”  and alleges that it violated the statutory prohibition on “advertis[ing], display[ing], or offer[ing] a price for goods or services that does not include all mandatory fees or surcharges.”

The defendant’s motion to dismiss in Baregi will be heard in October.

Payment processors and merchants must strongly oppose claims conflating credit card surcharging with mandatory or “junk” fees, whether in litigation, policy discussions, or public discourse.

To that same end, payments industry trade associations should include surcharging policy issues in their advocacy to lawmakers and regulators.

It makes little sense for payments trade associations to remain on the sidelines when virtually every payment processor offers a surcharging program to merchants, and processors and merchants will face increasing risk of litigation or regulatory action as confusion persists.

With or without the help of trade associations, for any company facing a lawsuit or regulatory action based on misinterpretation of mandatory fee laws, it is critical to educate the regulator or the court as to why optional credit card surcharges are not actionable under such laws.