Can New York state general businesses surcharge credit cards? No, it’s illegal. The US Supreme Court recently ruled on credit card surcharge rules for class action lawsuit Expressions Hair Design, et al., Petitioners v. Eric T. Schneiderman, Attorney General of New York, et al. Judgement issued May 1 2017, sending the case back to lower court.
US Supreme Court History of case
EXPRESSIONS HAIR DESIGN v. SCHNEIDERMAN ( )
808 F. 3d 118, vacated and remanded. https://www.law.cornell.edu/supremecourt/text/15-1391
Expressions Hair Design v. Schneiderman, NYS Attorney General oral arugments
EXPRESSIONS HAIR DESIGN LLC v. SCHNEIDERMAN, Decided: September 29, 2015
Illustration of receipt requirements for online and in store purchases adding a surcharge.
Are you a manufacturer or distributor and most of your customers pay by check or wire? Do you occasionally accept credit cards, but want to protect your margins from high merchant fees? Even though the card brands have changed rules about surcharging, in most cases, merchants are prohibited by state law from adding a fee if a customer pays by credit or debit card.
If it’s illegal to surcharge, what are alternative ways to protect profits?
- Increase all prices, and discount if the customer pays by check or wire. A side benefit is there are a lot of customers that would gladly pay a little bit extra to pay by credit card and cash flow usually improves for merchants. Customers that pay by check are unaffected.
- Maintain all prices and steer customers to cheaper cards; for example, offer a discount if paid by debit card. Most debit cards fall under the regulated rate of .05% and $.22 per transaction, so by offering a discount, merchants limit their cost of accepting cards. Before implementing, ensure an automated interchange management system is in place, and after implementing, review the effectiveness, A downside is many debit cards have daily limit restrictions.
- Implement an automated interchange management system. It’s critical for business to business (B2B) companies to control credit card process fees, regardless of negotiated merchant discount.
- Verify that transactions are qualifying with level III data. Contact a payments expert for additional information about level III processing.
If it’s not illegal in your state, can you comply with the card brand rules, illustrated in the receipt above?
- Merchants are required to have a subtotal on the receipt, and there’s virtually no payment solutions that support this. Merchants will also want a systematic method to enforce and calculate surcharges, to mitigate risk of employee error and fraud.
Reference Resource: Visa.com Merchant Surcharging – Understanding Payment Card Changes http://usa.visa.com/personal/get-help/checkout-fees.jsp
In the state of Florida, no. For other states, please review rules and regulations. Surcharges and convenience fees fall under card acceptance (Visa, Mastercard etc) rules, as well as legislative, such as state statutes.
What is a Surcharge? A payment card surcharge is a fee that a retailer adds to the cost of a purchase when a customer uses a payment card. It must be disclosed in advance and listed separately on the receipt. Surcharges are newly possible in 2013 due to a recent Visa & MasterCard class action settlement, however, not only do a number of states prohibit surcharging, as a result of the new rule, many more states are working feverishly to establish laws to prohibit surcharging.
What is a convenience fee? A credit card handling fee or convenience fee is a fixed or flat amount added to the transaction using an alternative payment channel outside the Merchant’s customary payment channels (example, i.e., not solely for the acceptance of the Visa Card). The amount must apply to all payment methods offered via that channel. Basically you’re not paying a fee for using the card, you’re paying a fee for using the payment channel, such as over the phone.
Can I discount based on payment type? Under the Dodd-Frank Wall Street Reform and Consumer Protection Act merchants were given new flexibilty to steer customers to lower cost payment methods, For example, a 1% discount could be extended for using debit cards. Merchants are prohbited from steering to a specific card brand.
Visa International Operating Regulations Chapter 6: Payment Acceptance > Convenience Fees (PDF)
Visa Merchant Surcharging (link to Visa web site)
Visa & MasterCard class action settlement includes merchant surcharge
| The 2012 Florida StatutesTitle XXXIII
REGULATION OF TRADE, COMMERCE, INVESTMENTS, AND SOLICITATIONS
| Chapter 501
|View Entire Chapter
501.0117?Credit cards; transactions in which seller or lessor prohibited from imposing surcharge; penalty.—
(1)?A seller or lessor in a sales or lease transaction may not impose a surcharge on the buyer or lessee for electing to use a credit card in lieu of payment by cash, check, or similar means, if the seller or lessor accepts payment by credit card. A surcharge is any additional amount imposed at the time of a sale or lease transaction by the seller or lessor that increases the charge to the buyer or lessee for the privilege of using a credit card to make payment. Charges imposed pursuant to approved state or federal tariffs are not considered to be a surcharge, and charges made under such tariffs are exempt from this section. A convenience fee imposed upon a student or family paying tuition, fees, or other student account charges by credit card to a William L. Boyd, IV, Florida resident access grant eligible institution, as defined in s. 1009.89, is not considered to be a surcharge and is exempt from this section if the amount of the convenience fee does not exceed the total cost charged by the credit card company to the institution. The term “credit card” includes those cards for which unpaid balances are payable on demand. This section does not apply to the offering of a discount for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, if the discount is offered to all prospective customers.
(2)?A person who violates the provisions of subsection (1) is guilty of a misdemeanor of the second degree, punishable as provided in s. 775.082 or s. 775.083.
History.—ss. 1, 2, ch. 87-43; s. 3, ch. 2010-219.
Author, Christine Speedy notes: To reduce credit card processing fees in the law practice:
- Use technology that automates interchange optimization. In short, your fees are lower because transactions are ‘qualified’.
- Ensure your merchant account supports level 3 data, required for the lowest qualified interchange rates for corporate and purchasing cards.
- Get a merchant account with ‘pass through’ interchange fees. This enables the firm to take maximum advantage of both items above, including reduced rates for large ticket transactions.