Credit card surcharging in California … some background
In 1985, a law against charging extra for using credit cards for purchases was put in place in California to protect the growing customer base that uses credit cards. 9 other states have also put into place laws prohibiting this: Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Visa and Mastercard also had industry rules not to surcharge either. Fast forward to 2013, when Visa and Mastercard settle a lawsuit removing the network rules that prohibited surcharging. 40 states are now legally allowed to have credit card surcharges.
If it wasn’t for a court ruling in 2015, credit card surcharging in California wouldn’t have come back up for discussion. The case has passed the appeals process making it legal in California, but a California merchant must use due diligence not to surcharge until California Civil Code 1748.1 has officially been removed from the law. Otherwise, merchants might still face fines from the card brands. In January 2018, we have heard of 2 businesses getting fined $5,500 and $11,000 from their processors passing the fine down from Visa for surcharging credit cards in California.
[UPDATE: Sept 12: 2018 – We have heard reports that the card brands are no longer fining for surcharging in California, New York, and Florida because the state laws have been turned over via Supreme Court Rulings. As a result, only 7 states remain with restrictions on surcharging. These being: Colorado, Connecticut, Kansas, Maine, Massachusetts, Oklahoma, and Texas. This article has been updated to reflect this new information. ]
Merchants who wish to begin surcharging are advised to follow the surcharge disclosure guidelines:
The other side of the story
As a buyer who prefers to use their credit card, you may be upset that credit card surcharging in California is now legal, however, there is a reason it exists. Business owners are charged extra by their card processor to transfer funds by credit card instead of cash. If businesses can pass the fee on to the customers, then it saves them money or motivates the customer to pay with cash or check.
It’s not all bad
While merchants will slowly begin to test credit card surcharging in their businesses, there are some strict rules they need to follow to be compliant otherwise they risk being fined by the card brands. Here they are:
- The surcharge cannot be more than 4%
- The surcharge cannot be more than their payment processing fees
- Surcharges allowed on credit cards only, not on debit cards – this includes debit with and without a pin code (aka offline debit)
- Surcharge rate signage must be clearly posted in front of the store and at the checkout
- Surcharge amount must appear as a separate line item on their customer receipts.
- Merchants must notify their processors they will be surcharging and register with the card brands.
- Cardholders must accept the total price (including the surcharge amount) at the checkout.
Whether you’re the business owner wanting to implement the fees, or the customer wanting to avoid them, there are a few more things you should know;
- There nothing wrong with offering a discounted transaction when paid with cash or check.
- One interested in credit card surcharging should read Visa’s Surcharging Rules and Visa’s Merchant Surcharging Considerations & Requirements (which has not yet been updated with CA, NY, and FL as allowable states)
- You should consider how your customers might react to your surcharging. What will they say? Will your competitors be doing it? Will this give them a positive taste about doing business with you? Will it keep them coming back or will it drive them away?
We hope this helped!
Credit card surcharging in California is has had a tumultuous game of back and forth. Even still while most payments industry experts agree it is allowable now, always consult your attorney for legal advice. If you’re looking for an advocate who values transparency and has book knowledge and street smarts, check out PayFrog.
