Is it Legal?

• If you charge customers for using plastic, read your credit card merchant services provider contract carefully; many providers prohibit small businesses from adding credit card processing fees onto sales. If your contract allows this practice and you chose to take advantage of it, always warn your customers ahead of time to give them the opportunity to pay with cash. Merchants who aren't allowed to charge credit card fees but do so anyways are in violation of their contract. If a customer is angry about being charged for using plastic, he can report this activity to the credit card processor, which can terminate a merchant's credit card processing capabilities.
  
  

How Much to Charge?

• In order for a merchant to accept credit cards, many credit card processing companies impose processing fees of anywhere from 1 to 5 percent of a customer's total purchase. Merchants pay electronically each time a card is processed and the funds are immediately deducted from their bank account. To compensate for this lost revenue, businesses can add the processing fee to the customer's invoice as a separate line item. Upon seeing this extra charge, many customers will choose to pay with cash or check.
  
  

Price Increases Cover Fees

• If your small business's profit margins are too narrow to absorb the cost of customer credit card processing fees, one way to cover the cost while maintaining customer goodwill is to indirectly charge customers by increasing prices enough to cover credit card fees. Most customers won't notice the slight increase in prices, but all customers will observe a separate fee for using plastic, which could annoy patrons and result in lost business. Your small business can still continue tracking the cost of the merchant fees and possibly deduct them as a business expense on yearly income taxes.
  
  

Other Options

• Many merchants find that their biggest decrease in profits derives from customers who use credit cards to pay for small items. To help merchants maintain profit margins while avoiding the practice of charging customers for using plastic, merchants can ask customers to make minimum purchases. H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of July 2010, enables merchants to require customers to make minimum purchases of at least $10. The law, sponsored by U.S. Representative Barney Frank, a Democrat from Massachusetts, revised major regulations for financial firms, insurance companies and consumer loan providers. On Page 693 of the bill, the Electronic Fund Transfer Act of 1978 was amended to allow merchants to require customers to make minimum purchases of at least $10.