Texas Credit Card Surcharge Laws

Quick Summary:

• Traditional credit card surcharging is prohibited under Texas Business and Commerce Code Section 604A.0021
• A 2018 federal court ruling (Rowell v. Paxton) declared parts of this law unconstitutional
• Businesses can legally impose convenience fees, service fees, and cash discounts
• Violations carry penalties up to $500 per offense, though enforcement is unclear
• Government entities and private schools are exempt from surcharge restrictions

Texas credit card surcharge laws present one of the most confusing regulatory situations in the United States. While state law clearly prohibits surcharging in most circumstances, federal court rulings have created a legal gray area that allows many businesses to add credit card fees without enforcement action. The complexity stems from conflicting authorities: Texas statutes ban surcharges, but federal judges have declared key provisions unconstitutional, while the state Attorney General maintains that some enforcement remains possible.

This legal uncertainty means businesses need to understand both the official Texas position and the practical reality of enforcement. Whether you're a contractor, wholesale distributor, or accountant managing multiple client payments, knowing where Texas law stands on surcharging can help you make informed decisions about recovering credit card processing costs.

Legal Disclaimer: This information is for reference only and does not constitute legal advice. Credit card surcharge laws in Texas involve complex constitutional issues and ongoing legal disputes. Consult with an attorney before implementing any surcharge programs.

Is Credit Card Surcharging Legal in Texas?

Credit card surcharging exists in a legal gray area in Texas. State law officially prohibits surcharges under Texas Business and Commerce Code Section 604A.0021, but federal courts have ruled that parts of this law violate the First Amendment, making enforcement problematic.

Texas Business and Commerce Code Section 604A.0021 states that "a seller may not impose a surcharge on a buyer who uses a credit card for an extension of credit instead of cash, a check, or a similar means of payment." However, in 2018, U.S. District Judge Lee Yeakel issued a permanent injunction in Rowell v. Paxton, blocking the State of Texas from enforcing this law against certain merchants.

The practical result is that many Texas businesses are adding credit card surcharges without facing penalties, though the legal risk technically remains.

What's Allowed

Texas businesses can implement these fee structures:

• Convenience fees - for alternative payment channels outside customary methods
• Service fees - applied uniformly across all payment methods
• Cash discounts - offering reduced prices for cash, check, or debit payments
• Government entity surcharges - state agencies, counties, and local governments can surcharge
• Private school fees - educational institutions can add credit card fees for tuition and charges

According to Texas Attorney General Opinion KP-0257, the federal court ruling doesn't invalidate all enforcement scenarios, meaning the law "remains enforceable in some contexts."

What's Not Allowed

These practices remain prohibited under Texas law:

• Traditional surcharging - adding fees specifically for credit card use vs. cash
• Misleading fee disclosure - unclear or deceptive surcharge practices
• Excessive surcharges - fees that exceed actual processing costs
• Debit card surcharges - prohibited on all debit transactions (federal law)

Penalty For Non-Compliance

Texas Business and Commerce Code Section 604A.003 establishes civil penalties up to $500 per violation for knowingly violating surcharge restrictions. Two officials can file enforcement actions:

• Texas Attorney General - can pursue civil penalties on behalf of the state
• Local District Attorneys - in the county where violations occur

However, it's unclear whether these penalties can be enforced following the Rowell v. Paxton decision. The Texas State Law Library notes that "it is unclear if the Texas law against credit card fees is enforceable due to a federal lawsuit."

Consumers can file complaints with the Texas Attorney General's Consumer Protection Division, though the office won't file individual lawsuits on behalf of consumers.

How Surcharging Laws in Texas Have Changed Over Time

Texas surcharge law has undergone significant evolution, creating the current legal confusion. The state initially prohibited surcharges through Texas Finance Code 339.001 in 2015, which amended earlier acts from 1999, 2005, and 2013.

In 2017, the legislature moved surcharge restrictions to Title 12 Chapter 604A of the Business and Commerce Code, maintaining the core prohibition while providing exemptions for government entities and private schools.

The critical change came in 2018 when federal Judge Lee Yeakel ruled in Rowell v. Paxton that Texas's surcharge ban violated merchants' First Amendment commercial speech rights. This permanently enjoined the state from enforcing the law in many circumstances.

Texas Attorney General Ken Paxton responded in 2019 with Opinion KP-0257, arguing that the federal ruling only applied to specific parties and factual circumstances, not all potential enforcement scenarios. This created the current situation where surcharge laws technically remain on the books but face constitutional challenges.

Surcharging vs. Cash Discounts in Texas

Texas law makes an important distinction between surcharges and cash discounts. According to Section 604A.001(5), cash discounts are not considered surcharges and remain fully legal.

Cash discounts involve advertising a credit card price and offering lower prices for cash, check, or debit payments. This approach avoids surcharge restrictions because customers pay less than the advertised amount, not more.

Surcharges add fees to a base price when customers choose credit cards over other payment methods. This practice faces the constitutional challenges described above.

Many Texas businesses have adopted cash discount programs as a compliant alternative to traditional surcharging, allowing them to recover processing costs while avoiding legal uncertainty.

Texas Credit Card Surcharge FAQs

Can Texas businesses legally add credit card processing fees in 2025?

The answer depends on how fees are structured. Traditional surcharges remain prohibited under Texas law, but federal court rulings have made enforcement difficult. Many businesses are adding fees through convenience charges, service fees, or cash discount programs without facing penalties.

What's the difference between surcharges and convenience fees in Texas?

Convenience fees can only be charged for "bona fide convenience" in alternative payment channels outside the merchant's customary methods. If a business only accepts credit cards, convenience fees are prohibited. Service fees must be applied uniformly across all payment methods.

Does the Rowell v. Paxton ruling apply to all Texas businesses?

The 2018 federal court decision specifically addressed the plaintiffs in that case, but created broader precedent about First Amendment protections. Texas Attorney General Opinion KP-0257 maintains that enforcement remains possible in other contexts, creating ongoing legal uncertainty.

Can Texas contractors and wholesale distributors pass credit card fees to customers?

These businesses often handle large invoice-based payments where processing fees significantly impact margins. While traditional surcharging faces legal challenges, many are using cash discount programs or convenience fees to recover costs. Given the legal complexity, consulting with an attorney is advisable.

What should Texas businesses know about federal vs. state surcharge rules?

Even if Texas surcharge restrictions weren't enforceable, businesses must still follow federal regulations (4% maximum) and card network rules (typically 3% for Visa). Proper disclosure and notification requirements apply regardless of state law status.