Governor Hochul signed into law a bill passed by the Assembly and Senate to clarify how a retailer can charge a surcharge on credit card purchases. The new law, which will take effect in February, will hopefully eliminate the confusion over the process of passing along exorbitant credit card fees to your customers.
For years it was generally understood that it was illegal in New York State to impose a surcharge on credit card sales. The law permitted providing a discount to cash customers, but it did not permit an additional charge being added for using a credit card. Businesses were permitted to have two-tier pricing for cash and credit – every gas station did it – but the legal way to offer two-tier pricing was by discounting cash payments.
In 2018, the New York Court of Appeals, in a challenge to the law, ruled that the statute as it reads is incorrect and that merchants may in fact impose a surcharge on credit card purchases so long as they post the total dollars and cents the customer will be charged. This meant that the total price including the credit card surcharge was presented to the customer. The court was quite clear that the customer must not be required to do the math themselves to determine the total price.
Over the past five years since this court decision was handed down it has been regularly misinterpreted. The message that “surcharges are okay” was heard loud and clear (with the help of credit card processors) but the part about having to list the total price of each item was lost in the wind. Signs popped up in all types of retail locations announcing surcharges on credit card purchases of varying percentages, usually with an explanation that the business was merely “passing along the cost” of credit card processing. But unless those businesses listed out the total price with the surcharge added for each item they were in violation of the law.
In order to ensure transparency, the new law requires businesses to clearly post the highest price that a consumer might pay for each item. Businesses are permitted to offer two-tier pricing systems in which the credit card price is listed alongside the cash price. This works well for businesses with limited items (like gas stations) but can be confusing and seemingly impossible to apply to a restaurant menu. With customers using credit cards to pay for the overwhelming share of transactions, some businesses have transitioned to giving a discount to customers who pay with cash – a practice that does not require itemized pricing. Make sure you consider the requirement of the new law as you try to navigate the constantly increasing costs of operating your business.