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Back in May, I wrote an article explaining what cash discounting programs were. But since then, there have been significant questions about surcharging customers and convenience fees. Largely the curiosity lies in if they are the same thing as cash discounting programs or something else entirely. To clear up any confusion, I’m going to discuss the different types and highlight how they vary from one another.
Surcharge – A surcharge for credit card processing is the practice of adding a small fee to a purchase to cover the cost of card acceptance. In credit card surcharging the fee for paying with a credit card is added to the advertised or “standard” price. Surcharges according to the card brands should never exceed 4% or the cost of processing a credit card whichever is less. Many people think that surcharging is illegal, and for a long time it was in many places in the United States. If you do a quick search on Google for states that have laws regarding surcharging, you may find that there are several that still have statutes that ban surcharging.
Here is the most recent information I could find when researching this issue for our clients.
Below is a current summary* of the status of the no-surcharge statutes in those states where such a statute previously was enacted. **
*As found at https://www.jdsupra.com/legalnews/kansas-court-rules-no-surcharge-statute-2665282/
**BNG does not offer legal advice and this article is not meant to replace legal counsel.
| State | Relevant Statute | Status |
| California | Cal. Civ. Code § 1748.1 |
Declared Unconstitutional The U.S. Court of Appeals, Ninth Circuit affirmed district court ruling that California’s no-surcharge statute violates the First Amendment but declined to consider the issue of vagueness. Italian Colors Rest. v. Becerra, 878 F.3d 1165 (9th Cir. 2018) |
| Colorado | Colo. Rev. Stat. § 5-2-212 |
Still in Effect but Legislation to Repeal Pending The Colorado General Assembly currently is considering legislation that would repeal Colorado’s no-surcharge statute but would limit the maximum surcharge merchants could impose on customers to 2% of the total cost paid for a good or service.
2021 Colo. S.B. 91, 73d General Assembly (Feb. 16, 2021). |
| Connecticut | Conn. Gen. Stat. § 42-133ff | Still in Effect |
| Florida | Fla. Stat. § 501.0117 |
Declared Unconstitutional The U.S. Court of Appeals, Eleventh Circuit reversed the district court ruling and found that Florida’s no-surcharge statute regulated speech and violated businesses’ commercial speech rights, and thus was unconstitutional. Dana’s R.R. Supply v. Bondi, 807 F.3d 1235 (11th Cir. 2015), reh’g en banc denied 809 F.3d 1282 (11th Cir. 2016), denying cert. 137 S. Ct. 1452 (Apr. 3, 2017). |
| Kansas | Kan. Stat. Ann. § 16a-2-403 |
Declared Unconstitutional by District Court The U.S. District Court, District of Kansas held that Kansas’s no-surcharge statute regulated speech and violated a credit card processing company’s commercial speech rights, and thus was unconstitutional. The district court declined to consider the issue of vagueness. CardX, LLC v. Schmidt, No. 2:20-cv-02274, 2021 WL 736322 (D. Kan. Feb. 25, 2021). Legislation to Repeal Pending The Kansas State Legislature is considering legislation to repeal the statute prohibiting merchants from imposing a surcharge on consumers who elect to pay via credit card. 2021 Kan. H.B. 2316, 89th Legislature (Feb. 10, 2021). |
| Maine | Me. Rev. Stat. Ann. tit. 9-a, § 8-509 | Still in Effect |
| Massachusetts | Mass. Gen. Laws Ann. ch. 140D, § 28A |
Still in Effect but Legislation to Repeal Pending The Massachusetts General Court is considering legislation to repeal the statute prohibiting merchants from imposing a surcharge on consumers who elect to pay via credit card. 2021 Mass. H.D. 2907, 192d General Court (Feb. 18, 2021). |
| New York | N.Y. Gen. Bus. Law § 518 |
Still in Effect but Pending Further Review The U.S. Court of Appeals, Second Circuit held that New York’s no-surcharge statute did not violate the First Amendment and vacated the judgment entered by the district court and remanded for dismissal. On appeal, the U.S. Supreme Court held that the statute does regulate speech and remanded the case to the Second Circuit for further analysis. Expressions Hair Design v. Schneiderman, 808 F.3d 118 (2d Cir. 2015), vacated and remanded, 581 U.S. __, 137 S. Ct. 1144 (Mar. 29, 2017). Legislation to Repeal Pending The New York State Assembly currently is considering legislation that would repeal the state’s no-surcharge statute, 2021 N.Y. S.B. 4018, 244th Legislative Session (Feb. 1, 2021), as well as other forms of legislation that would repeal the existing law and replace it with one to comply with recent New York court decisions regarding how prices must be presented to consumers and limit the maximum surcharge merchants could impose on customers to 4% of the total cost paid for a good or service. 2021 N.Y. S.B. 4035, 244th Legislative Session (Feb. 1, 2021); 2021 N.Y. S.B. 1394, 244th Legislative Session (Jan. 11, 2021); and 2021 N.Y. A.B. 314, 244th Legislative Session (Jan. 6, 2021) |
| Oklahoma |
Okla. Stat. tit. 14A, § 2-211 Okla. Stat. tit. 14A, § 2-417 |
Declared Unconstitutional by Attorney General Opinion
The Oklahoma Attorney General issued an opinion that Oklahoma’s no-surcharge statute does not facially violate the First Amendment but would not survive First Amendment scrutiny as it applies to commercial speech regulation, effectively stopping all enforcement of the statute. Okla. Attn’y Gen. Op. 2019-12 (Dec. 17, 2019) |
| Texas | Tex. Bus. & Com. Code Ann. § 604A.0021 |
Still in Effect but Pending Further Review The U.S. Court of Appeals, Fifth Circuit held that Texas’s no-surcharge statute neither violates the First Amendment nor the Due Process Clause. The U.S. Supreme Court vacated the judgment and remanded the case to the Fifth Circuit (and subsequently further remanded to the district court) for further consideration in light of the ruling in Expressions Hair Designs. The matter is now pending before the U.S. District Court, Western District of Texas. Rowell v. Pettijohn, 816 F.3d 73 (5th Cir. 2016), vacated and remanded, 137 S. Ct. 1431 (Apr. 3, 2017), remanded, 865 F.3d 237 (5th Cir. 2017). |
Cash Discount – This is when the customer receives a discount off the advertised price by paying with cash or check instead of a credit card. The credit card rate for the good and service being provided is the “standard” price. In true cash discounting the advertised price is the credit card price and a discount is given when a client pays with cash, check, or debit card. A cash discount should also not exceed the lesser of cost of acceptance of a credit card or 4% of the volume of a transaction. A true cash discount program also grants debit card payments the cash discounted pricing, however, most processors’ cash discounting solutions do not offer that distinction. Cash discounting was deemed legal in all 50 states as of the Durbin Amendment* circa. 2013.
*https://www.federalreserve.gov/econresdata/feds/2014/files/201477pap.pdf
Convenience Fee- A convenience fee is a form of surcharging in which the business charges a fee when their customers choose to pay in a non-standard payment channel or method. Many people prefer to pay for things with a credit card to get their rewards points. Businesses have additional costs when accepting credit card payments, so to deter a customer from utilizing a credit card for a nonstandard payment method they add a convenience fee. Not everyone can charge a convenience fee. The card brands have rules for convenience fees:
| Company | Fees Allowed |
| Visa | Merchants can only charge a convenience fee on payments made through an alternative payment channel and not solely for the use a Visa credit card. The only exception to this rule is tax payments (there is a separate set of rules for that and only some states accept payments via Visa). |
| Mastercard |
Allows pre-certified government agencies and educational institutions to charge convenience fees on Mastercard credit card transactions. The fee can apply whether the cardholder pays in person, over the phone, online or by mail. |
| American Express | Allows government agencies, educational institutions, utility companies and rental establishments to assess convenience fees in its merchant regulations. |
| Discover |
The payment network does not have set rules regarding convenience fees. It simply states that merchants cannot charge a convenience fee to a Discover cardholder unless it charges the same fee to a cardholder with a Visa, Mastercard or American Express credit card. |
If you have ever ordered a movie ticket online, you may have had to pay a convenience fee. For a movie theater, the standard method of payment is buying a ticket in person at the ticket counter, therefore online is an alternative payment channel. Another example is paying a utility bill over the phone or online. Their “standard” method of payment being you mailing in a check payment. In either case, the fee applies to the payment channel, not the method of payment, so it does not matter if you pay with credit or debit.
Are any of these methods right for your business? We would be happy to discuss this with you! Our team of credit card sales professionals are always available to explain the pros and cons of anything you want to do with regards to your business’ credit card processing solutions.
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