It’s no secret that credit card processing fees can take a significant bite out of your profit margins. One local business in Kentucky stopped taking credit cards altogether and saved about $900 per month as a result.
But going to a cash-only model isn’t realistic for most businesses. That’s why so many merchants in Kentucky have considered surcharging their customers for the privilege of paying via credit card.
If you’re considering this route, you need to make sure you fully understand the credit card surcharge laws in Kentucky. Read on for a full explanation.
Disclaimer: This information is provided for reference purposes only and does not constitute legal advice. For specific legal guidance, consult with an attorney.
Are Credit Card Surcharges Legal in Kentucky?
Yes, credit card surcharging is legal in Kentucky.
Kentucky allows businesses to add surcharge fees to credit card transactions, but there’s a lot of confusion about the specific rules you must follow to stay compliant, including how much you can charge, how to disclose these fees, and what information needs to appear on customer receipts.
Lots of sources on the web cite Kentucky House Bill 259 when referring to the state’s surcharge laws. Had it passed, this law would have further regulated how surcharge fees can be applied in Kentucky. And while HB 259 passed the House, it died in the Senate and never actually became law. There was also a companion bill to HB 259 (HB 256) that sought to ban payment-method surcharges outright. This also failed.
But there are currently no state-specific laws that restrict or limit surcharges in Kentucky. This means that merchants in Kentucky can simply default to federal laws when setting up a surcharge program.
Maximum Allowable Credit Card Surcharge in Kentucky
Businesses in Kentucky can legally surcharge credit cards up to 4% of the transaction amount. This is the maximum allowable surcharge set by federal law, and since Kentucky doesn’t have its own laws governing surcharges, federal guidance can be followed.
There’s a bunch of misinformation and inaccurate third-party blogs on the web claiming that the maximum allowable surcharge in Kentucky is 3% of the transaction amount or the actual processing cost (whichever is less).
This simply isn’t true. Those articles are referring to HB 259 as the source of the law, but as we’ve previously established, that law never actually went into effect.
Debit Card Surcharging is Illegal in Kentucky
Like all 50 states, it’s illegal for businesses to impose a surcharge fee on debit card transactions. This is a federal law that’s part of the Durbin Amendment to the Dodd-Frank Act.
Even if the debit cards are run and routed through a “credit” network, it’s still illegal to add a surcharge to them.
This has become a problem for Kentucky businesses and merchants throughout the US with surcharge programs. With new customer-facing POS terminals and tap-to-pay technology, cashiers and employees rarely end up touching the customer’s card.
Items are rung up, and the price just appears on the customer’s screen with the surcharge fee added. If that customer decides to pay with a debit card, it’s not like the system can recognize it as a debit transaction and remove the fee. This would need to be done prior to the sale.
It’s on the business and employee to ask the customer whether they’re paying with a credit or debit card prior to adding the surcharge. And if the customer chooses debit, the fee must be removed.
Read More: Surcharge Laws in All 50 States
Surcharge Disclosure Best Practices For Kentucky Businesses
Despite Kentucky’s lax or non-existent surcharge laws, merchants still need to follow federal regulations and card network rules when it comes to surcharge fees.
And while the card network rules technically aren’t “laws,” you can still be penalized or fined for non-compliance.
- Advance Notice — Card networks typically require merchants to notify the card brand and acquiring bank at least 30 days before implementing a surcharge program.
- Point of Sale Signage — You must display clear signage at the point of entry and point of sale, notifying customers that a surcharge will apply to credit card transactions.
- Receipts — Surcharges need to appear as a separate line item on customer receipts, clearly labeled as a credit card surcharge.
- Debit Card Disclaimer — Receipts and signage should make it clear that surcharges do not apply to debit card transactions.
- Online Checkout — For ecommerce, the surcharge must be disclosed on the checkout page before the customer submits their payment.
Transparency is critical.
You can’t blindside customers with extra fees at checkout. Regulators don’t want businesses to disguise surcharges as hidden fees, either.
I recommend referring to the FTC’s new junk fees law and how it relates to credit card surcharges in Kentucky.
How to Report Illegal Surcharging in Kentucky
If you’re a consumer who believes a Kentucky business is illegally surcharging transactions, you can report it directly to the Kentucky Attorney General’s Office of Consumer Protection.
- File a Complaint Online
- Phone: (502) 696 – 5389
- Hotline: (888) 432 – 9357
- Fax: (502) 537 – 8317
Office of Consumer Protection
1024 Capital Center Drive, Suite 200
Frankfort, Kentucky 40601
Common violations worth reporting include:
- Credit card surcharges that exceed 4% of the transaction.
- Surcharges on debit cards.
- Surcharges that are not properly disclosed or itemized.
While we don’t offer any consumer-specific services here at MCC, we’d still like to hear about your experience as a consumer in Kentucky. If you’ve been surcharged by a business, drop a comment on this page and let us know how you feel about it.
Should Your Business Surcharge Credit Card Transactions in Kentucky?
Even though surcharging is legal in Kentucky, it doesn’t mean that it’s necessarily right for your business. You need to ultimately weigh the pros and cons of surcharging to decide if recouping a few percent is worth losing customers over.
For most businesses, it’s just not worth it.
Don’t get me wrong. There are a handful of scenarios when surcharging makes sense. But we often find that there are more reasons why merchants shouldn’t surcharge their customers.
Surcharge programs are tough to comply with and maintain, even in states like Kentucky, where it’s legal.
Customers hate it, and you’ll likely lose them to competitors who aren’t charging them extra just for the privilege of paying using a familiar form of payment—a credit card.
I have a full list of surcharging alternatives that I recommend prior to rolling out a surcharge program.
You can also request a free consultation with our team here at MCC. We can help lower your processing rates without switching providers, which is a win-win for both you and your customers. They don’t have to pay more, and you can save thousands on credit card processing without doing anything differently.