By now most consumers know that when they use a credit card the merchant is charged a fee by the credit card company. But because merchants in many states are not allowed to pass on that cost to the customer in the form of an added surcharge, most people simply disregard it, even though they are paying for it one way or another. Some states do allow the merchants to add a surcharge, but it must be prominently communicated to customers.
The dilemma for merchants is, if they aren’t allowed to add a surcharge, how to find a way to recoup the cost of merchant fees, and the only way to do that is by increasing their prices, which can make them uncompetitive. Many merchants prefer not to add the credit card surcharge because they don’t want to appear as if they are gouging their customers.
How Merchants Try to Get Around the Surcharge
In some states, like California, merchants are able to discount product prices for people who pay for products with cash rather than a credit card. You are probably familiar with the practice because gas stations may offer both a cash price and a credit card price per gallon.
Merchants who can’t otherwise get around the credit card surcharge laws of their state or the requirements established by credit card companies, will often accept only cash, and that can be very limiting as most people prefer to pay with debit or credit cards these days.
Another way merchants try to mitigate the cost of surcharges is to require a minimum dollar amount for credit card purchases. The Dodd-Frank Wall Street Reform and Consumer Protection Act legitimatized the practice but set the minimum amount at ten dollars.
The Courts Have Ruled on Surcharges
In a federal court ruling, which clarified the use of surcharges by merchants, it was determined that merchants could add a surcharge to purchases made with a Visa or MasterCard. However, the ruling says that merchants must treat all credit card purchases the same, which means they would also have to add a surcharge to purchases made with an American Express card. The problem is American Express prohibits merchants from adding surcharges. That is why you find a lot of merchants who simply don’t accept American Express cards.
Some States Don’t Follow Federal Law
Despite the federal court ruling, California, New York, Florida, and seven other states continued to make it illegal for merchants to add a surcharge to credit card sales up to four percent. Specifically, these states prohibited merchants from disclosing that a particular price includes a surcharge for using a credit or debit card.
The Supreme Court Weights In
Then, in 2017, the Supreme Court unanimously ruled that such laws violated the 1st Amendment by regulating speech – the ability for a merchant to communicate to its customers how they were paying for the surcharge. The Supreme Court did not actually reverse the lower court’s ruling; rather it ruled that the lower court must come up with its own justification for regulating speech in this instance. That particular case is still being batted around in lower courts, so the outcome is not yet settled.
Merchants Are Not the Bad Guys
For merchants, the credit card surcharge waters are still somewhat murky, and the difference in statutes among the states makes it all the more confusing. For customers it should be known that credit card surcharges are never going away, but the way they will pay for them will continue to change as merchants try to figure out the rules while battling it out with the courts.
The merchants want customers to know that they are not the bad guys; they blame the credit card companies for forcing them to raise prices or tack on surcharges. However, customers can find protection in both state and federal laws that clearly forbid any deceptive practices by merchants to recover surcharges. For customers who feel they have been deceived into paying a credit card surcharge where it wasn’t clearly communicated, they should contact the credit card company and the Attorney General of their state.
Author: Jeff Gitlen
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