The Controversy Over Credit Card Surcharges

Well, if you have been shopping lately, chances are you have been subjected to the “credit card surcharge fee” levied onto your bill at the time of paying and either didn’t notice it or it was done in such a way that you were blind-sided as you handed the merchant your card and went through with the sale anyway. Well, here is some information to take with you as you shop. It is against the law for a merchant to add a surcharge to your purchase at the time you are paying for such purchases. I have been charged as much as 4% when purchasing birthday cards. I was only given notice of this surcharge as I was paying the bill, with my debit card no less, not even a credit card. There was a small business card sized notice at the check out counter. Needless to say, I do not and never will shop there again.

Let’s start at the beginning. New York General Business Law § 518, titled Credit Card Surcharge Prohibited, states: (1)  no seller in any sales transaction may impose a surcharge on a holder who elects to use a credit care in lieu of payment by cash, check, or similar means; and (2) any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both. This law has been in effect since 1984. It is also a little confusing.

MUST NOTIFY CUSTOMERS

If you plan on charging a credit card surcharge you must let your customers know and the price of the merchandise must reflect in the posted and/or advertised price and not added to the price of the merchandise at the register.

Then in 2018 the New York Court of Appeals heard a challenge to § 518 in Expressions Hair Design, et al. v. Schneiderman, 32 N.Y. 3d 382, 2018. The Court ruled that the statute, as it’s read, is incorrect and merchants may in fact charge a surcharge to customers paying by credit care so longs as they post the total price the customer will be charged, meaning the total price, inclusive of the surcharge and this must be clearly presented to the customer. What is prohibited is posting a cash price and then charging a percentage surcharge for a credit transaction. Per the Court, “customers must not be expected to do the math to figure out the total price that they will be paying.” Basically, the court clarified the law. The fact remains, you cannot list a price on an item, then charge more at the register. Now, five years later, the legislature is clarifying § 518 by codifying the Court’s ruling in Expressions Hair Design. This bill amends
§ 518.

In January of 2023, the State Assembly and State Senate introduced bills[1] to amend § 518. After some discussion, amendments, and edits, the final version of the bill passed both the State Assembly and the State Senate in June of 2023. It is not a law yet. However, if signed by the Governor the new law – now titled the Credit Card Surcharge Notice Requirement, will state: (1) any seller in any sales transaction imposing a surcharge on a customer who elects to use a credit card in lieu of payment by cash, check, or similar means shall clearly and conspicuously post the total price for using a credit card in such transaction, inclusive of the surcharge, provided however, any such surcharge may not exceed the  amount of the surcharge charged to the business by the credit card company for such credit card use.   The final sales price of any such sales transaction, inclusive of such surcharge, shall not amount to a price greater than the posted price for such sales transaction.  Nothing in this subdivision shall be deemed to prohibit merchants from offering a two-tier pricing system. For the purposes of this section, “two-tier  pricing system" shall mean the tagging or posting of two different prices in which the credit card price, inclusive of any surcharge, is posted alongside the cash price; (2) any seller who violates the provisions of this section shall be liable for a civil penalty, recoverable in an action or proceeding brought in a court of competent jurisdiction not to exceed five hundred dollar for each such  violation. The provisions of this subdivision may be enforced concurrently.

So, what does this mean? In short, here is what you need to know.

1.)    In any sales transaction, the total price for the item being purchased with a credit card, must include the credit card surcharged and must be posted in a manner that is obvious to the customer. The merchant may not charge a surcharge at the check-out counter.

2.)    The credit card surcharge may not exceed the amount of the surcharge charged to the business by the credit cared company to process such credit card use. This means if the bank charges 2.9%, the merchant cannot charge 3.5%. The maximum surcharge allowed is 4%.

3.)    Merchants may offer a “two-tiered pricing system” posting clearly and visibly the price for paying in cash and a price paying with a credit card (inclusive of the credit card surcharge) alongside each other.

4.)    There seems to be a bit of vagueness concerning the phrase “payment by cash, check, or similar means.” Does “similar means” include debit cards, prepaid cards and payments made by Venmo or Zelle? Currently the belief is debit cards, prepaid cards, and payments made by Venmo or Zelle are considered “similar means.” I advise merchants to error on the side of caution as to not open themselves up to civil penalties and litigation.

5.)    Merchants must notify customers about at the point of entry and the point of purchase in their brick-and-mortar stores, and on the home page and the start of the check-out page of their website.

6.)    According to VISA, merchants must notify their credit card processing company 30 days prior to the start of charging the credit card surcharge, and the surcharge must be clearly indicated on the sales receipt.

7.)    Also advised is to think carefully about your customers and what your competitors are doing. In a consumer environment where we try to promote buying locally, don’t make it more attractive to purchase online.

 Stay tuned to see if the Govenor signs this bill and if our legislator address Venmo.

[1] New York Assembly Bill 2672 and New York Senate Bill 1048.