As a result of the settlement in a recent VISA-MasterCard class action suit, it seemed to many that the proverbial door to contractors charging credit card fees to customers had been opened. But in the real world, it's not so simple.

As of Jan. 27, merchants are now allowed to apply a surcharge to customers who use Visa and MasterCard credit cards. But merchants are NOT allowed to charge a surcharge to customers who use Visa and MasterCard debit cards; those cards were not involved in the settlement.

However, for many merchants, this new freedom may be illusory. Under the settlement terms, any merchant that imposes a surcharge on a Visa or MasterCard credit card transaction is also required to add the surcharge to American Express transactions, if that merchant also takes American Express.

That is supposed to level the playing field among the major cards. But American Express has its own rule that says merchants must treat every form of electronic payment equally. This means that, in order to add the surcharge to American Express transactions, the merchant would have to add it to every other card it accepted, including debit cards.

However, both Visa and MasterCard prohibit surcharges on debit cards. This effectively means those merchants carrying American Express cannot add a surcharge to any transaction. Moreover, there are a number of states that simply prohibit the use of credit card surcharges, or have legislation pending to prohibit such charges.

So, if you want to apply a surcharge on credit card payments, what in essence must you do?

  • Cease accepting American Express.
  • Don't apply the surcharge in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas (because those are the states where using a surcharge is illegal).
  • Watch carefully the pending anti-surcharge legislation in Hawaii, Illinois, Kentucky, Missouri, New Jersey, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Tennessee, and West Virginia.

—D.S. Berenson is the Washington, D.C. managing partner of Berenson LLP, a national law firm specializing in the representation of contractors and the home improvement industry. He may be contacted at (703) 759-1055 or
This article is for informational purposes only and should not be construed as legal advice.