Introduction to Credit Card Surcharges
Credit card surcharges are additional fees which credit card issuers or merchants may charge to consumers when the consumer uses a credit card for a transaction. Surcharges often mimic the fees incurred by a merchant when they process and accept the credit card (such as the merchant discount rate). While some merchants chose to absorb the credit card surcharges and assess the charges against the price of the good or service, others assess credit card surcharges against consumers based on their preferred method of payment.
Surcharges are prohibited in roughly 10-11 states and regulated in another few. Under the current terms of the Connecticut Credit Card Surcharge Law , merchants are required to provide notice to the Connecticut Attorney General if they plan to charge a credit card surcharge. The Notice must include the name of the merchant, address of the retail location(s) covered by the Notice, identification of surchargeable credit card brands and disclosure of the amount of the surcharge, as well as a sample surcharge receipt.
In addition to the Notice requirement, the Connecticut Credit Card Surcharge Law also requires a merchant that is charging a credit card surcharge to disclose the existence of the surcharge on the face of each receipt issued or printed stationary or other evidence of sale issued or printed by the merchant, in at least 10-point type.
The Details of the Connecticut Surcharge Law
The first paragraph begins: "A seller that accepts a credit card for goods or services shall not impose a surcharge on a buyer who elects to use a credit card to pay for goods or services." That’s it. It’s not that long, and it’s also not that complicated. But let’s break it down for a moment.
First, the statute refers to the seller that "accepts" a credit card. Does this mean that it only applies to sellers who specifically ask customers if they want to pay by credit card? No, the plain language of the statute contemplates that this statute applies when the customer "elects" to pay with a credit card. In other words, if you merely accept credit cards, you can’t assess a surcharge.
Second, what constitutes a "surcharge"? Under the statute, a "surcharge" shall be defined as "any additional fee, surcharge or special charge, however described, added to the price of goods or services, except that this shall not prohibit a seller from offering a discount, in the form of a rebate or otherwise, to a buyer for a payment using cash, a check or similar means." In other words, you can "discount" something off the price, but you can’t "surcharge" a credit card fee or charge it as an add-on.
Many states have similar laws on the books. But what sets Connecticut apart is the private right of action that can arise from a violation. When you sow the seeds of a lawsuit into every add-on fee, it tends to scare off sellers from noncompliance.
Implications for Connecticut Businesses
Implications for businesses using credit cards in Connecticut
Because the law takes impact on July 1, 2010, businesses have a short time to comply with this new requirement. This means the business must start to comply if it takes action after that date.
With many employees of those businesses leaving in the summer for vacations, there is not an even distribution of available employees, much less staff that has knowledge, expertise and experience in working with the requirements for complying with the Connecticut law. The training required to comply with the Connecticut law, the policy development required to ensure compliance with the Connecticut law and the installation of the requirements to comply with the law and to provide notices under the law will divert marketing, finance and legal resources from other companies’ operations.
First, all merchants in Connecticut will have to determine all their locations in Connecticut where they accept credit cards as a payment form. The store in Greenwich has to be treated the same as the store in New Haven or New London. It is one policy that must be applicable to all locations in Connecticut and all customers at all locations. A business cannot be in compliance in Stamford and out of compliance in Bridgeport or anywhere else in Connecticut. The company must ensure that they train their employees at all locations, no matter how many employees they may have. They will need to communicate this and all related policies to all employees, not just those at one or two locations.
Second, they have to determine the maximum fees that will be charged, so they can calculate what surcharge they may need to apply, if any. The business must ensure that they do not charge the maximum fee of 2%. Like the price of appliances or other goods, it is simply not competitive to charge the maximum fee just because they can. It risks losing customers who will pay more because they do not have a credit card.
Then, they need to determine the discount that they provide when a customer pays in cash. A business cannot increase the price for credit card payments.
Third, they must train employees to understand these policies and how and when to apply them. It is important to understand the timing and the when the discount may be available or the surcharge may be applied. It is important to know exactly when the discount is available and exactly when the surcharge is to be applied. It is also important to define the point during a transaction when the discount is to be given or the surcharge is to be applied. It must be done at a point that is clear and unambiguous to the customer and employee. It cannot be so late in the process that the customer feels obligated to pay the additional cost for credit card processing. The timing of the adjustment may create a risk of noncompliance with the law. If a business feels forced to accept a credit card and charge the surcharge because an employee fails to offer the discount in time, the business could be in violation of the law and subject to the penalties for noncompliance. Therefore, it is critical to ensure that no employee is permitted to opt out of implementing the policy or procedure for applying the surcharge and discount.
Consumer Rights under the Law
The Connecticut credit card surcharge law was passed to protect consumers. The legislature found that since businesses are free to offer discounts to consumers who pay in cash, as a substitute for credit, it is unfair to impose a cost on consumers who seek to pay by credit card. It is the opinion of the legislature that the credit card surcharge creates a penalty for consumers who pay by credit card as compared to those who pay in cash. As a result, consumers have the right to file a claim with the Connecticut Department of Consumer Protection if they are charged an illegal credit card surcharge in Connecticut. Consumers also have a private right of action to pursue civil claims against businesses who charge surcharges. Those civil claims are generally brought under the Connecticut Unfair Trade Practices Act.
Comparison with Surcharge Laws in Other States
In addition to Connecticut, many other states also have laws regulating how and when surcharges may be applied to credit card transactions. These laws vary significantly, both in terms of what is allowed and what is prohibited, so it is important for businesses and consumers alike to know how Connecticut’s law compares to those in other states.
Similar to Connecticut, California and Colorado have no state surcharge law and follow the provisions of the federal Electronic Fund Transfer Act ("EFTA"), 15 U.S.C. 1693-1693r, 12 CFR Part 205, which prohibits any merchant from imposing surcharges, but this applies to debit card transactions. The District of Columbia has no surcharge law, but instead relies on federal law, similar to the District’s law on credit card surcharges.
Florida permits merchants to impose surcharges, but only if they clearly state the amount of the surcharge and make sure that it appears on every receipt. Virginia has a similar law. Massachusetts similarly so, except that there is no requirement that the surcharge be disclosed on the receipt. Pennsylvania has not enacted any surcharging law, but because its anti-discrimination law concerning pricing based on payment method does not explicitly cover credit cards, it was determined in a federal case that its anti-discrimination law allows imposing surcharges to credit card holders.
New York, Texas and Vermont allow surcharges, but only if the surcharges are exact percentages of the charge. Thus, under New York statute, for example, merchants are permitted to apply a surcharge, but the provisions of the statute that "establishes parameters of the surcharge" require that the "individual store or retail establishment shall post notice in a conspicuous place and on the front of every menu , a clear and conspicuous notice of such additional charge" and that "any such additional charge shall not exceed four percent of the price for such product." A similar scheme is set forth in the Texas statute.
A number of states have carve-outs for gas stations and may allow these stations to apply a surcharge to a credit card transaction only if they also provide a discount to consumers that pay with cash.
Applicable to all of these state laws is the requirement that the customer "consent" to the surcharge. For example, in the American Express case, 2019 WL 100240, the district court stated in dicta that a merchant that merely charged a higher price for a good or service than the advertised price following passage of the Massachusetts law, "then [t]he cardholder has not consented to the surcharge, and cannot be said to owe a debt" to the merchant. Id. at *1 (emphasis in original). Thus, it is important to note that acceptance of the credit card by a business, by definition, signifies consent to the surcharge.
The biggest difference between the state surcharge laws and the federal law is that the former restrict surcharging based upon the payment method, while the latter restricts surcharging based upon the amount of the transaction, which could be interpreted to mean that it does not allow a flat fee to be imposed.
Most of these variations in state laws deal with surcharging for goods, not services, so it is unclear in states that display a pre-transaction surcharge whether this will be extended to services. However, the language in the New York statute leaves no doubt that the prohibition extends to services as well as goods.
Recent Developments and Legal Issues
The Connecticut surcharge law remains on the books as of the date of this article. However, several developments may lead to a change in the near future.
Currently, two bills relating to the Connecticut surcharge law are being debated by the state legislature. A new version of the Connecticut surcharge law was introduced as House Bill No. 6691 this year, and would put the old version of the Connecticut surcharge law back on the books. The new version contains minor changes from the old law. In addition, House Bill No. 5538 has been introduced and would eliminate the Connecticut surcharge law altogether. House Bill No. 5538 and House Bill No. 6691 are working their way through the legislative process.
In two cases tried in Connecticut state court, plaintiffs filed lawsuits against Home Depot and Lowe’s, arguing the companies charged too high of a credit card surcharge amount in violation of the Connecticut surcharge law. Both cases were dismissed on a motion to dismiss filed by the defendants. The court determined that the language of the old version of the Connecticut surcharge law was not sufficiently specific to impose liability on the defendants for impermissibly surcharging the named plaintiffs. Plaintiffs have appealed the lower court’s decisions in both cases.
Middle District of Florida Judge Mary S. Scriven recently issued an opinion in which she found that Florida’s surcharge law is unconstitutional on its face. As part of the opinion, Judge Scriven found that the Florida surcharge law implicates protections of the First Amendment and that it was not narrowly tailored. Currently, there is no proposed legislation in Florida to amend the law in order to meet the requirements under the Constitution.
Several other suits are also pending in other district courts.
Tips for Compliance
For businesses that decide to adopt a surcharge on consumer credit card purchases in Connecticut, here are some practical tips and best practices to help ensure compliance with the surcharge law:
Determine how the surcharge will apply: As described above, there are significant variations in how a surcharge could be applied to consumer credit card purchases. A business will first need to determine whether it will add the surcharge to all consumer credit card purchases or only certain types of consumer credit card purchases, and how the surcharge will be determined (i.e., if it will be a flat percentage amount or a fixed dollar amount). A business may also wish to determine whether it should limit credit cards that are subject to the surcharge, e.g., by excluding certain popular rewards cards or a certain type of card brand. In addition, a business should determine whether it wishes to impose a surcharge only on consumer credit card purchases in excess of a certain amount or instead upon all consumer credit card purchases above a certain amount.
File a Notice of Intent: As discussed above, the surcharge law requires a retailer to file a "Notice of Intent" to impose a surcharge with the Connecticut Department of Consumer Protection ("DCP"). A small fee is required for each such filing. A "Notice of Intent" may be filed prior to adoption of a surcharge policy, but a retailer may not implement any such surcharge until 30 days after it has filed such a notice. A Notice of Intent must be filed with the DCP at the following address:
Supervised Business Division
Consumer Protection Inspector
Connecticut Department of Consumer Protection
165 Capitol Avenue, 3rd Floor
Hartford, CT 06106-1630
Be Careful to State the Correct Amount of the Surcharge: The surcharge law contains certain requirements relating to how a retailer may advertise, sell, or offer to sell consumer credit card purchases and the price for those purchases. In particular , when advertising or offering to sell goods or services for which a surcharge will be charged, a retailer must state that the advertised or offered price is subject to a surcharge, but only if the advertised or offered price bundle or package price is not the same for cash and credit. Note that under the surcharge law, there is no requirement that retailers advertise or offer to sell goods or services at a single price. However, if there is a price differential between the price offered for a cash versus a credit card purchase, then a retailer must provide notice to consumers that the advertised or offered price is subject to a surcharge and must state the specific amount of the surcharge that will be added to the price upon purchase. In addition, the surcharge must be clearly and conspicuously stated to a consumer before he or she becomes obligated to pay and must be expressed as either
In addition to complying with Connecticut’s surcharge law, businesses should be aware that some credit card networks maintain their own restrictions on surcharging beyond those imposed by Connecticut’s law. For instance, Visa and MasterCard prohibit merchants from directly or indirectly imposing a surcharge on Visa and MasterCard-branded credit cards. Merchants should be aware that if they impose a surcharge on credit card purchases in Connecticut using Visa and MasterCard-branded credit cards, Visa and MasterCard may fine the merchant. On the other hand, American Express does not prohibit surcharging; however, a company that accepts American Express may not charge a surcharge in Connecticut if it surcharges other credit card brands. See American Express Merchant Regulations, ยง 5.16 (Prohibition of Surcharges).
If a business follows these guidelines but is concerned that it is not complying with Connecticut law, or if it has certain other questions about the law, it should contact a reputable attorney specializing in business law.