Financial Fees are Largely Unavoidable but Surcharges are an Avoidable Penalty

The meaning of the terms ‘fees’ and ‘surcharges’ in personal finance varies from country to country, and depends to a large extent on the kind of financial transaction in question. The terms may have different meanings in relation to credit cards, to mortgage loans, or to the operation of bank accounts. Generally speaking, a fee is a standard charge for supplying a standard service or facility. A surcharge is usually an additional and exceptional charge for a service or facility outside prescribed limits, in effect a penalty.

In the United States there are legal definitions of some of the terminology used in consumer credit. These definitions are listed in the Truth in Lending Act  Section 226, known as Regulation Z, but this statute does not give a definition of either fees or surcharges. Instead, it gives a definition and examples of the term ‘finance charge’, which is defined as ‘the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit’.

The examples given make it clear that in this context ‘finance charge’ includes interest, service charges, loan account transaction charges, credit report fees and mortgage protection insurance premiums. It does not, however, include loan application fees or charges for late payment or exceeding a credit limit.

Setting aside the Truth in Lending Act, with its rigorous definitions applicable only to the regulations it seeks to make with regard to consumer credit, it is obvious that the explanation of the terms ‘fees’ and ‘surcharges’ must be sought in accepted accounting practice and in the terminology used by banks and other lending institutions. The most straightforward way to define them is by supplying examples of each.


As previously stated, a fee is a standard charge for supplying a standard service or facility. It can be a flat fee charged either once only or at frequent fixed intervals. Alternatively, it can be a calculated percentage (of the amount of a loan, for example), but usually as a one-time charge, which distinguishes it from regular interest. Some examples are:

– a monthly fee for operating a bank account

– a transaction fee in a bank account for writing a check or requesting a statement

– a fee for stopping payment of an issued check

– a fee for special banking services such as traveler’s checks

– an annual fee for a credit card or debit card facility

– a loan application fee payable to a lender in return for processing the paperwork

– a fee charged by a mortgage broker for finding a lender prepared to give you a loan

– a monthly loan service fee a fee charged by a bank for granting an overdraft

– a fee charged by the lender for discharging the loan at the end of the agreement

Fees will normally be charged according to a clear, pre-advised scale. The print may be small, but there should be no nasty surprises. They are part of the regular cost of financial facilities, are usually widely published by the financial institution, and should not vary beyond normal cost of living increases.


A surcharge, as the prefix ‘sur-‘ implies, is an amount charged on top of, or in addition to, a normal fee. The surcharge cannot exist unless there is already a fee covering normal circumstances, because it is the price levied for an exceptional service, or a penalty imposed for a breach of rules or limits. Surcharges are more often calculated as a percentage of the amount of a facility or transaction, but once again should not be confused with interest. Surcharges include: 

– a surcharge for exceeding the credit limit on a bank account

– a surcharge for making a repayment that is too late, or too small, on a loan or credit card balance

– a foreign currency surcharge for using a credit card overseas, or to purchase online in another currency

Just like fees, surcharges are required to be disclosed by the lender up front, when you first take out a loan or set up a bank account. In practice, details of the surcharge circumstances and how they are calculated may be buried in the small print. Most consumers may be unaware of their existence, since they do not expect to exceed credit limits or default on a loan, but the wise finance user will seek out these details in advance.

Some finance costs fall into a grey area between fees and surcharges. A bank’s customer may believe that the re-issuing of a missing monthly statement, or the replacement of a lost or stolen credit card, should attract a minimal fee. From the bank’s viewpoint these are abnormal and costly transactions outside the normal range, and the excessive amounts some institutions charge for these services puts them more in the realm of surcharges than fees.

Fees and surcharges are in effect all the amounts charged by financial institutions for credit or banking facilities, with the exception of interest charges on lending products. The Truth in Lending Act is not a useful guide to the distinction between fees and surcharges, being in fact rather confusing in lumping most fees and surcharges together with interest, under the umbrella title ‘finance charge’, while excluding some fees such as loan application fees. Perhaps the simplest way to draw a distinction is to liken fees to the predictable taxes paid by the well-behaved and conventional financial citizen, while surcharges are more like fines, a punishment for disregarding the rules or for daring to ask for something out of the ordinary.