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New York’s Law on Surcharging Credit Card Users
New York’s Law on Surcharging Credit Card Users
By: Jessica A. Villi, Law Clerk
When customers use a credit card to purchase goods or services, there is a processing fee that businesses must pay in order to receive payment. The fee can be anywhere from 1%-5% depending on the credit card company, so in order to help bear the cost, many businesses wish to impose an additional charge on their customers who choose to pay with credit or debit cards. This additional charge can be referred to as a “surcharge” or “convenience fee.” However, the practice of “surcharging” is prohibited by New York State under section 518 of the New York General Business Law, unless a business utilizes its exceptions. A business is legally allowed to “surcharge” their customers who use a credit or debit card while still complying with New York State law, as long as certain conditions are met.
The exception to section 518 allows businesses to charge a higher price when:
- The business makes the higher charge, the “regular price”; AND
- That price is advertised in a prominent place within the business.
Simply stated, section 518 regulates the way in which businesses may communicate their prices, rather than completely prohibiting them from adding an extra cost for the use of credit or debit cards.
For example, a merchant who wants to add a 3% surcharge fee to customers who pay with a credit card is permitted to do so, but only under certain conditions. Taken from the Supreme Court’s decision in Expressions Hair Design v. Schneiderman (2017), “A merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say “$10, with a 3% credit card surcharge” or “$10, plus $0.30 for credit” because both of those displays identify a single sticker price – $10 – that is less than the amount with which the credit card users will be charged. Instead, if the merchant wishes to post a single sticker price, he must display $10.30 as his sticker price.”
The regular cost of a good or service must be displayed as the price that a credit card user would pay at the register. Customers who pay in cash, by check, or by means other than a credit or debit card will be given a “discount” at the payment counter. So, in order to comply New York State law, businesses are required to post the higher credit card price labelled as the “regular price,” but may offer a discount to those who pay in cash. Businesses may post both prices, but must advertise the prices as (1) the “regular price” (the sum of the price of the product/service and the credit card fee) and (2) the “discounted price for cash payment.”
The second condition is the requirement that these prices must be posted in a prominent place within the business where it is easily viewable to customers prior to payment. The basis for these regulations are to avoid blindsiding the customer at the payment counter with an unexpected higher price tag and to ensure that customers are fully informed before making their decision to purchase.
A few examples of lawful ways to advertise prices, taken from the New York Division of Consumer Protection website, are listed below:
- A sign on the wall that reads, “The first price listed is if you use a credit card or debit card for your purchase. The second is for cash.”
- Good! Businesses may post both prices as long as customers are fully informed of their options before making their purchase.
- A sign at the register that reads, “$3 discount for all cash purchases.”
- Good! Cash prices may be advertised as a discount. This further establishes that the “regular price” (without a discount) will be a higher charge.
- A sign on the door that reads. “3% discount for cash payments”
- Good! Cash prices may be advertised as a discount. This further establishes that the “regular price” (without a discount) will be a higher charge.
Unlawful ways to advertise prices, also taken from the New York Division of Consumer Protection website are:
- At the register, the cashier tells the customer, “There will be an extra $2 charge because you are using a credit card to pay.”
- No: Why not? This information must be in writing and posted prominently within the business. Oral communication of prices is not permitted.
- A sign at the register that reads, “$5 fee for credit card sales.”
- No: Why not? Businesses may post a sign advertising cash discounts, not additional charges for using a credit or debit card.
- After enjoying a meal and receiving the check, a customer is charged an additional “services fee” after saying that they will be paying with a credit card.
- No: Why not? Customers must be informed of their payment options and prices before they reach the payment counter.
The bottom line is this:
- The “regular price” must be the sum of the cost of the good/service plus the desired credit card fee; AND
- Prices must be posted in a prominent place within the business; AND
- Cash payments must be advertised as a “discount.”
For assistance with compliance, or to discuss other laws and regulations that may impact your business, reach out to your usual firm contact, or contact the firm at (315) 471-8111.
