Business owners beware before implementing a credit card surcharge
November 5, 2023
The costs of doing business have been steadily increasing. As a business owner you are likely painfully aware of the merchant fees charged for accepting credit cards. For many small businesses operating on razor thin margins, those fees can take a significant bite out of your bottom line. That is especially true today when, according to a recent Forbes study, 91% of Americans use credit as their primary form of payment.
In response to the increase in card usage, and subsequent increase in fees charged to a business, some business owners have inquired about the legality of passing that fee along to the customer in the form of a surcharge on each credit card purchase. As is often the case, the answer to the question is not a simple yes or no, but a more nuanced interpretation and application of the law.
Federal and State law prohibit a merchant from adding a “surcharge” to a transaction for goods and/or services at the point of sale whether it be a flat fee or a percentage of the total transaction fee. Federal law does however allow differential pricing so long as the higher price charged to credit card users is posted in total dollars and cents. The New York State Court of Appeals held that requiring consumers “to engage[d] in an arithmetical calculation, in order to figure it [the credit card price] out – is prohibited by statute.”
As a consumer yourself you have likely seen different prices posted at various businesses including nail salons, restaurants, , or even the gas station where a discount at the pump might be offered if you pay with cash versus a credit card.
After reading this, you may be thinking of all kinds of examples of merchants adding “surcharges” to your bill in one form or another and wondering if they are breaking the law. Not necessarily but maybe.
Consumers have become savvier when it comes to their rights, and it is equally important that merchants ensure they are operating within the boundaries of the law. Defending against a violation is expensive and if found at fault typically includes interest, penalties and liquidated damages imposed by the government.
We work closely with business owners on many aspects of their business operations, including compliance with various merchant laws such as these. It is much more cost-effective to implement compliant policies and procedures or update existing policies and procedures rather than face action by a state and or federal agency for violating these laws.
If you are already using a dual pricing system or considering the addition of a surcharge to credit card transactions for your business, call or email us.
The Gross Shuman Team is here to help.
Chanel T. McCarthy has more than ten years of experience assisting clients with their business needs - from lease agreements and contract negotiations to operations and employment matters. Chanel has a wide range of experience in business law including the distinct issues relative to small business, construction and hospitality. Chanel also brings a wealth of experience in the areas of trust and estate administration and litigation, and other matters before the Surrogate’s Court. She can be reached at 716-854-4300 ext. 254 or cmccarthy@gross-shuman.com.
