Whether you’re running a business in South Dakota or you’re buying something locally, understanding the state’s surcharging laws is important.
For businesses, these rules will help you stay in compliance and avoid penalties. And for consumers, knowledge of local laws can ensure you’re not being ripped off by a South Dakota merchant.
There’s a lot more to it than simply “legal” or “illegal” in South Dakota. Read on for the full breakdown.
Disclaimer: This information is for reference only. It’s not legal advice, and you should consult with an attorney to verify local laws before implementing a surcharge.
Are Merchants Allowed to Surcharge in South Dakota?
Yes, surcharging is legal in South Dakota. But with several contingencies:
- Surcharge fees can only be applied to credit card transactions.
- Surcharges can’t exceed the merchant’s actual processing costs.
- Clear disclosure is required at store entrances, point of sale, and websites.
- It’s illegal to surcharge debit cards or prepaid cards (as it is nationwide).
The most significant restriction in South Dakota is that the surcharge fee can’t be more than what the business pays to process the cards.
So if your effective rate is 2.5%, then you legally cannot have a surcharge fee of 3% (even though federal law technically allows surcharges up to 4%).
And if your effective rate is higher than 4% (say 4.5% or 5%), the maximum allowable surcharge fee is still 4%.
How South Dakota’s Surcharge Laws Compare to Other States
South Dakota falls into the majority of states where credit card surcharging is legal.
But it’s one of 12 states with some sort of stipulation, and just one of six states that explicitly prohibit surcharge fees from exceeding the merchant’s cost of acceptance.
This contingency is in place as a consumer protection law. Merchants in South Dakota can’t use their surcharge program as a profit center, hiding behind swipe fees as an excuse to charge more to customers.
Instead, the law says that surcharge fees can be put into place as a way to reimburse businesses for processing costs.
The Origin of South Dakota’s Surcharge Rules
South Dakota’s stance on surcharging comes from a nationwide settlement from 2013. This is why the state’s Consumer Protection Office of the Attorney General refers to settlement specifically when governing these laws instead of state-specific legislation.
The settlement allowed merchants nationwide to begin surcharging with fewer restrictions. But the South Dakota Consumer Protection Division took a position that prioritized transparency.
They require surcharges to reflect actual costs rather than simply maxing out whatever federal laws permit.
Other Surcharge Rules That Must Be Followed in South Dakota
Even though South Dakota allows surcharging, it’s important to understand that merchants still need to comply with other federal regulations and card network rules on top of the state’s requirements.
Here’s what that means in practice:
- Federal law caps surcharge fees at 4% of the transaction amount.
- Surcharging debit cards or prepaid cards is illegal under federal law (the Durbin Amendment).
- Visa limits surcharges to 3% and requires 30 days advance notice.
- Most card networks require surcharges to be applied consistently across all brands (which effectively caps you at 3% if you accept Visa).
- Your surcharge fee must never exceed your actual processing costs.
Let’s say that your effective processing rate for Visa is 2.5%, but it’s 3.2% for Amex.
Technically, South Dakota law would allow you to charge 2.5% on Visa and 3.2% on Amex since those fees reflect your actual costs (and both are below 4%).
But since most card networks require uniform surcharging across all card types, you’d need to calculate your effective rate instead and use that to determine your maximum allowable surcharge.
Your effective rate is your total processing costs divided by total volume. It’s the most accurate indicator of your cost of acceptance because it accounts for all card types, transactions, and processor markup. It’s also a great way to figure out if your processor is overcharging you with hidden fees and excessive margins.
Surcharge Disclosure Requirements for South Dakota Businesses
Just because Surcharging is legal in South Dakota, it doesn’t mean you can’t just add fees without properly informing your customers. Transparency is critical for both legal compliance and maintaining consumer trust.
South Dakota has clear disclosure requirements for surcharges that must be displayed in multiple locations.
For brick-and-mortar stores:
- At the point of entrance (visible signage)
- At the point of sale or checkout counter
- On the transaction receipt showing the percentage and dollar amount of the surcharge
For online businesses:
- On your website’s homepage
- During the checkout process, before the transaction is finalized
- On the confirmation receipt showing exact amount of the surcharge itemized
These disclosure statements must clearly specify that you’re adding a surcharge, explain that it applies to credit cards (but not debit cards), and show the percentage being charged.
The FTC has similar disclosure guidelines that you can follow to stay compliant.
How to Report Illegal Surcharging in South Dakota
Consumers in South Dakota have some recourse if they encounter any illegal surcharging practices. Even though it’s legal for businesses to add surcharge fees, there are still several ways that merchants can violate the rules:
- Surcharging debit cards
- Adding surcharges that exceed their actual processing costs
- Surcharge fees that exceed 4%
- Failing to properly disclose surcharges before the transaction
- Hiding fees or using deceptive pricing practices
If you believe that a business is violating any of the state’s surcharge rules, you can file a complaint directly with the South Dakota Attorney General’s Consumer Protection Division.
Office of Attorney General
Division of Consumer Protection
1302 E Hwy 1889 Ste 3
Pierre SD, 57501
They can also be reached by:
- Email: consumerhelp@state.sd.us
- Phone: (605) 733-4400 or 1-800-300-1986
- Fax: (605) 733-7163
The Consumer Protection Division actively monitors compliance with surcharge requirements and can investigate businesses that aren’t following the rules.
And while we don’t offer any consumer-specific services here at MCC, we’d still love to hear about your experiences. So drop a comment below if you’ve been charged a surcharge fee in South Dakota. Whether it was positive or negative, we’ll make sure to share that feedback with the businesses we work with so they can hear the consumer’s perspective.
Consider the Alternatives Before Surcharging Your Customers
Despite being legal, surcharging definitely isn’t a no-brainer decision for South Dakota merchants.
So before you start passing extra operating fees to your customer just because you can, I strongly recommend that you weigh the pros and cons of surcharging. Most businesses quickly realize that the downsides far outweigh the potential gains.
While recouping an extra 2% or 3% of the transaction to cover processing costs may sound nice, it can likely cost you customers.
Expect bad reviews, loss of business, and customers choosing to buy from your competitors that don’t pass along the extra fees.
Whether it’s $0.50 or $2.50, it’s a matter of principle. Customers would rather have these fees baked into the base price than added in at the end.
I have a full list of surcharging alternatives that can help you save money on credit card processing without burdening your customers. So check it out before you decide.
Final Thoughts on South Dakota Surcharge Laws
South Dakota’s surcharge laws strike a balance between giving merchants flexibility and protecting consumers from excessive fees.
The requirement that surcharges can’t exceed the actual processing cost is consumer-friendly compared to other states that simply defer to the federal 4% maximum. It ensures that businesses use surcharges as a cost-recovery method instead of a profit center.
That said, surcharging is still a bad idea for most businesses.
You’re better off negotiating better rates and getting bogus fees removed from statements instead of passing extra costs along to your customers.
Our team here at MCC can audit your merchant statements for free to identify savings opportunities and then work directly with your current processor to lower your fees. So you can save money on credit card processing without switching providers or surcharging your customers.