Restaurant Credit Card Fees – Something to Look Out for While Traveling
Perhaps, like Rip Van Winkle, I slept (but I don’t think so!) through the following development we ran into at 2 restaurants on our recently completed trip to Charleston, SC. When presented with the bill for one of our meals, the total price of the menu items we ordered was followed by these words: “The prices above reflect a 3% cash discount. If paying by credit card, your total is….” Wait, what?
Differential Pricing is Generally Legal
Per a Supreme Court ruling dated March 29, 2017, merchants (including restaurants) may engage in “differential pricing”; i.e., customers buying the same item can be charged a higher price if they use a credit card than if they paid cash. (So, perhaps, I have been sleeping…or just lucky…until now!) Surcharges, it turns out, are legal unless restricted by state law (as is the case in Connecticut and Massachusetts).
Now, I want to be clear…I don’t begrudge any business establishing a price/fee structure that allows it to operate profitably (while, one would hope, providing an acceptable level of service and compensating its employees fairly). What struck me sideways was being surprised by this surcharge/“discount” when presented with the bill for service. At least cash and credit prices are clearly (and prominently) displayed before pulling into a gas station. To one restaurant’s credit, the following statement does appear on the landing page of its website: “We impose a credit card fee of 3% on transactions when paying with a credit card….” (Unfortunately, I had made our reservation through OpenTable and the same restaurant’s listing there does not include any such disclosure.) There is no similar notice on the other restaurant’s website. Nor do I recall seeing any such notice on either restaurant’s menu.
Should Customers Pay the Bill for Credit Card Surcharges?
One restaurant’s explanation was, “A good amount of the restaurants in Charleston do this now…. The fee goes to cover a portion of the nearly $350k we spend just to accept credit cards.” OK, I get that; restaurants pay to accept the credit cards we turn into miles and points. Still, it feels a little disingenuous to specify swipe fees as the sole or even primary justification for this practice. Is that really the major driver of inflation? And how much less revenue would restaurants realize if they didn’t promote (as they do!) the acceptance of credit cards for payment?
Also, I worry that an unintended consequence of this practice may impact servers adversely. On which amount should one’s tip be based? The pretax total of food and beverage items ordered? The post-tax total? The post-tax total plus the surcharge? Will some diners reduce their tip by the amount of the surcharge? The answers to these questions stand to impact servers more than the restaurants employing them. Allow me to illustrate….
How Do Credit Card Surcharges Affect Server Tips
Bon Apetit’s restaurant editor once suggested 5 rules to help navigate the tipping culture in the U.S. Rule #2 was, “Never tip on tax. Tip based on the subtotal.” Whether you agree with his advice or not, watch what happens when a 20% tip is added to the pre-tax total of items ordered using the actual restaurant bill pictured above:
| Total of menu items ordered | (per the menu) | $88.00 |
| Tip | Menu items ordered * 20% | 17.60 |
| Tax (in Charleston, SC) | Menu items ordered * 11% | 9.68 |
| Surcharge | (Menu items ordered + tax) * 3% | 2.93 |
| Charged to credit card | Total of all items above | $118.21 |
But…if the restaurant had simply increased the cost of menu items 3% across the board, the tip would have been $18.13 instead, broken down as follows:
| Total of menu items ordered | (Prices for menu items above increased by 3%) | $90.64 |
| Tip | Menu items ordered * 20% | 18.13 |
| Tax (in Charleston, SC) | Menu items ordered * 11% | 9.97 |
| Charged to credit card | Total of all items above | $118.74 |
53 cents may not seem like much, but if this fictitious server were to wait on 20 such tables per night and work 5 nights a week for 50 weeks a year, the annual difference would put $2,650 more in the server’s wallet or purse! An interesting thought experiment either way.
Bottom line:
If restaurants would simply bake their operating costs into their menu prices instead of adding a surcharge (or, even worse, calling the unchanged menu item prices “discounted”) for paying by card, both the owner and employees would benefit. Depending on the way this surcharge/“discount” is presented on the bill, only the restaurant (which really hasn’t “discounted”/reduced its menu prices!) is sure to benefit – and that (pun intended) leaves a bad taste in my mouth.
What do you think?
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I believe that the 3% upcharge for using your credit card should not be passed on to the consumer. This is a cost of doing business that the owner/operator should pay. Businesses should be happy to get patrons to make their business strive.
I do my best to avoid restaurants that have this fee. Won’t go to one if I know in advance…if I find out once I’ve arrived, it might mean ordering less than I would have otherwise (“why yes I do just want the $5 soup of the day special for my lunch”) – also the server is getting EXACTLY 15% tip.
The crime is the 11 percent sales tax. Wow
Lots of opinions here. My two cents is this: (1) it is unethical if the restaurant does not make its policy clear before ordering, and (2) let the market sort it out. Lots of people do not carry much cash nowadays and will be annoyed by a surcharge but there is no need for a one size fits all approach.
I usually do not go back to restaurants that charge a credit card fee. But then again there are restaurants that I have nit been back ti since pre-covid. I only tip on the cost of food and beverage.
Still only tipping on the Subtotal. Then with this definitely will not be any 20%.
As I said on the FB page:
IF they let you know BEFORE you order, that’s ok. But to spring this when the bill comes? That guarantees me never coming back, plus a nasty word or two to management or in a review.
Agreed. They are also putting servers on the front line of dealing with this issue just because the restaurant did not understand that it is an operating cost.
I don’t even understand anyone that would be willing to pay it. They could have my credit card and charge it for the cash price or comp me the whole meal. In regards to tipping, I only tip when service is above and beyond… not some made up 10, 20, or whatever percent.
I dont tip on sales tax and I dont tip on surcharges. So dont @ your customers for not tipping you “15%”
That 3% costs them any repeat business from me along with the 25-30% tip to the staff.
Here in Mexico, the price you see on the menu is what you pay and tax or surcharge has to be included.
Restaurants who do this are generally run by families or small-minded executives. I ran bakeries in several cities. They are not taking into account their costs associated with dealing in cash. Trips to the bank to deposit the cash and loss (yes, cash always seems to disappear here and there while surprisingly credit card receipts do not). If it’s a family run business, they don’t pay their family so they don’t account for that. There are also small-minded owners who only see direct cash outlays (credit card fees) and don’t see anything else. Credit card consumers typically spend 35% more than cash consumers. Maybe that’s why they don’t tell them upfront, because they know it’s shady and they don’t want to miss out on that 35%. Lastly, if they had $350,000 in credit card fees, they did over $10,000,000 in business annually. That is a MASSIVE amount for one single restaurant. They would need 300 parties like yours ($100) per day…every day. There are very few restaurants who can claim that sort of turnover.
These fees are out of control. Last year I went to a tapas place in San Diego, and a lunch for 2 (without drinks) cost over $140 including tax, tip and a 5% “employee wellness fee” whatever that is. Naturally, I reduced my intended tip by that amount.
Every time I see stuff like this I think of Les Mis…
Charge ’em for the lice, extra for the mice
Two percent for looking in the mirror twice
Here a little slice, there a little cut
Three percent for sleeping with the window shut
I find these fees to be ridiculous, just like hotel fees, electricity fees, gratuity fees that don’t ever go to the staff… They’re all ridiculous. Guaranteed that is you hauled out a debit card to pay, they’d still charge the 3% fee despite swipe fees being capped on those transactions.
If my debit card is charged, I charge the fee back and I have done this for 3 years now. Never lost one chargeback. So, if you just charged my debit transaction of 10.00 a 4% fee you lost because you just got hit with a $15.00 chargeback and I got my.40 back. Plus I report it to Visa which warns them it’s against regulations and let’s me know they were warned so when I go back and they haven’t stopped charging debit cards, I report them again and they get fined beginning with $5000. Was it worth the .40?
Any restaurant that does this gets to do this exactly once to me, because that will be my last visit.
Exactly…
Restaurants in my area have started doing this and I too have been asking nicely to speak to a manager.
When a manager does arrive, I explain to them that I understand why they are charging but I also let them know, as others here have stated, Credit card customers spend more per purchase and we’re there because they take credit cards and I don’t have to carry as much cash on me. I also let them know that I’m usually a little more generous on the tip when paying with my credit card, etc… And finally, I let them know that I probably will think twice before going back to that restaurant as I feel they are placing the blame on the wrong guy (me the customer!). I usually get a sob story about the fees and I politely listen but I also just smile and say I understand…and just head out. I just want them to think, this customer was not an ass and explained their side….I wonder how many other customers I may be losing due to this?
My NextDoor app also makes a list of the restaurants who are doing this…and as a community, we’re letting those restaurants know, that us customers are factoring this into our decisions.
Yes, this does not yet seem to have made it to the big chain restaurants yet, and is ultimately hurting the little guy – small business – which I hate to think they’re shooting themselves in the foot.