The Colorado credit card surcharge law lets businesses pass credit card processing costs to customers, but caps the surcharge at 2% of the transaction (or the actual processing cost, whichever is lower), requires specific written disclosures, and bans surcharges on debit, cash, check, and gift card payments. The rule sits at C.R.S. 5-2-212 and took effect July 1, 2022. Get the details wrong and you face civil penalties of up to $20,000 per transaction plus the possibility of private customer lawsuits.
The 2% Cap and How to Calculate It
Your surcharge cannot exceed the lesser of two numbers: 2% of the transaction, or the merchant discount fee you actually pay your processor for that transaction.1Justia. Colorado Revised Statutes Section 5-2-212 – Surcharges on Credit Transactions – Enforcement – Definitions If your processing costs run 1.7%, your cap is 1.7%. If they run 2.4%, you’re still capped at 2%.
The statute defines the merchant discount fee as the actual amount, whether expressed as a percentage or a fixed dollar figure, that a business pays its processor or service provider to handle the transaction.1Justia. Colorado Revised Statutes Section 5-2-212 – Surcharges on Credit Transactions – Enforcement – Definitions That’s the total your processor bills you, which typically bundles interchange, network assessments, and the processor’s markup. It is not the interchange fee alone.
Processing costs commonly run from about 1.5% to 3.5%, which means many Colorado merchants will find their real costs above the 2% ceiling. In that case, you can only recover part of what you spend. Calculating a different surcharge for every card is impractical, so Visa’s guidance lets merchants use either the actual cost per transaction or the average cost of acceptance from the prior month.2Visa. Merchant Surcharging Q&A The prior-month average is the workable option for most businesses.
What You Cannot Surcharge
Colorado prohibits surcharges on payments made by cash, check, debit card, or gift card redemption. The required signage language in the statute makes this explicit.1Justia. Colorado Revised Statutes Section 5-2-212 – Surcharges on Credit Transactions – Enforcement – Definitions
The debit rule catches merchants who assume that running a debit card as “credit” at the terminal changes anything. It doesn’t. The card is still a debit card, and surcharging it still breaks the law. Federal law defines debit card broadly enough to sweep in general-use prepaid cards as well.3Office of the Law Revision Counsel. 15 U.S. Code 1693o-2 – Reasonable Fees and Rules for Payment Card Transactions If the card draws from a bank account or a preloaded balance rather than extending credit, you cannot add a surcharge.
Required Disclosure Language and Receipt Rules
The statute prescribes the exact wording of the notice you must post. If you surcharge at the flat 2% cap, the notice reads:
“To cover the cost of processing a credit or charge card transaction, and pursuant to section 5-2-212, Colorado Revised Statutes, a seller or lessor may impose a processing surcharge in an amount not to exceed 2% of the total payment made for goods or services purchased or leased by use of a credit or charge card. A seller or lessor shall not impose a processing surcharge on payments made by use of cash, a check, or a debit card or redemption of a gift card.”1Justia. Colorado Revised Statutes Section 5-2-212 – Surcharges on Credit Transactions – Enforcement – Definitions
If your surcharge is your actual merchant discount fee rather than the 2% ceiling, the statute provides an alternative version of the notice that references the merchant discount fee in place of the 2% figure. Either version has to be posted on the business premises where customers can see it before they pay. For online transactions, the disclosure must appear before checkout, not on a post-purchase confirmation screen.1Justia. Colorado Revised Statutes Section 5-2-212 – Surcharges on Credit Transactions – Enforcement – Definitions
The surcharge must also appear as a separate line item on every receipt. You cannot fold it into the total, and you cannot label it as a tax or a government-imposed fee.
Visa and Mastercard Notification
Colorado’s cap is stricter than either card network’s, but the networks impose their own rules on top of state law. Visa caps surcharges at 3% of the transaction or the merchant’s actual cost, whichever is lower, and requires merchants to notify Visa and their acquirer at least 30 days before starting to surcharge.4Visa. Surcharging Credit Cards – Q&A for Merchants Mastercard also requires 30 days’ advance notice to both the network and the acquirer, with its own 4% cap.5Mastercard. Mastercard Credit Card Surcharge Rules and Fees for Merchants
Because Colorado’s 2% limit sits below both network caps, the state figure controls what you charge. The notification step is separate. Skipping it violates your merchant agreement even if your surcharge amount is perfectly legal under state law, and the consequences (network fines or loss of card acceptance) can be worse than the state penalties.
Cash Discount as an Alternative
Instead of adding a surcharge to credit purchases, you can lower the price for customers who pay with cash or debit. Federal law protects the right to offer cash discounts, and Colorado permits them alongside its surcharge rules.
The distinction is straightforward. With a surcharge, your posted price is the base price, and credit customers pay more. With a cash discount, your posted price is the credit price, and cash customers pay less. A cash discount program doesn’t trigger Colorado’s surcharge disclosure and signage requirements, so compliance is simpler. Merchants who blur the line by posting an inflated “regular” price and then advertising a “discount” that’s really the normal price risk running afoul of the Consumer Protection Act’s prohibition on deceptive trade practices.
Penalties for Getting It Wrong
The Colorado Attorney General or a district attorney can bring civil enforcement actions under the Colorado Consumer Protection Act. Each improper surcharge counts as a separate violation.
- Standard violations: up to $20,000 per violation, with each affected customer or transaction treated as its own offense.6Justia. Colorado Revised Statutes Section 6-1-112 – Civil Penalties
- Violations targeting elderly individuals: up to $50,000 per violation.6Justia. Colorado Revised Statutes Section 6-1-112 – Civil Penalties
Courts can also order refunds of the surcharges collected and issue injunctions requiring the business to change its practices. A shop that improperly surcharges a few hundred customers can face six-figure exposure.
Private Lawsuits from Customers
Government enforcement is not the only risk. Under C.R.S. 6-1-113, a customer who proves a surcharge violation can recover the greater of actual damages, $500, or, if the business acted in bad faith, three times actual damages. The winning customer also recovers attorney fees and court costs.7Justia. Colorado Revised Statutes Section 6-1-113 – Civil Actions The $500 statutory minimum gives even a customer surcharged a few dollars enough at stake to file, and the fee-shifting provision makes the cases economical for plaintiffs’ lawyers.
The treble damages provision applies when a violation involves fraudulent, willful, knowing, or intentional conduct.7Justia. Colorado Revised Statutes Section 6-1-113 – Civil Actions A POS misconfiguration that accidentally surcharges debit cards probably doesn’t hit that threshold. Knowingly charging above 2% or skipping the required signage almost certainly does.
Common Compliance Mistakes
- Surcharging debit cards. Many point-of-sale systems don’t automatically distinguish credit from debit, so a blanket surcharge rule violates the law on every debit sale. This is the most common failure, and it’s a technology configuration problem.
- Exceeding the actual merchant discount fee. Setting a flat 2% surcharge when your processing cost is 1.6% breaks the statute. Your surcharge is the lesser of 2% or your actual cost.
- Wrong signage. The statute prescribes specific language. A handwritten “3% credit card fee” sign fails both the disclosure format and the surcharge cap.
- No receipt line item. The surcharge must appear separately. Bundling it into the total fails the transparency requirement.
- Skipping card network notification. Even a compliant surcharge amount doesn’t excuse missing the 30-day written notice to Visa and Mastercard.
Businesses that accept credit cards through third-party platforms or franchise systems should also check their merchant or franchise agreements for additional restrictions. Some franchise networks prohibit surcharges outright to keep pricing consistent across locations, and a franchise violation creates its own problems independent of state law.