How the Credit Card Settlement Will Affect the 10 States That Have Prohibitive Laws Regarding Surcharging?

Scott E. Blakeley, Esq.

In light of the pending Credit Card Settlement Agreement, that if approved would allow vendors to pass on any surcharges from the credit card companies to customers, 10 states still have codified statutes that prohibit surcharging.

The 10 prohibitive states are California, New York, Florida, Texas, Kansas, Oklahoma, Maine, Connecticut, Massachusetts, and Colorado. Many of the states on the list are major players in the national economy.

The language from the California version of the code states:

“No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers (Ca. Civ. Code 1748.1(a)).”

The codes addressed above all have similar language with similar effects. It is important to notice that the language of the California code, much like all the other states codified language, does not differentiate between business to business and business to consumer settings.

Vendors in these 10 states may believe that with the settlement agreement, they can now have transparency in passing on the surcharge to customers. However, if the settlement terms were to take effect, these 10 states would not be influenced by the agreement in any way. Instead, vendors in these 10 states will have to rely on the same old tactics currently used.

A key means to bypassing the surcharge prohibition is to create a two tiered price system. One price includes the base price for the product and factors in the surcharge average (whether it be 0.5% or 3%). The other price, often referred to as the “cash discount” is just the base price without the surcharge fee factored in. In order not to run afoul with the Robinson-Patman Act a vendor must offer both prices to all its customers in order to avoid any sort of price discrimination.

Another means of avoiding the state law prohibition is to merely raise prices factoring in surcharge into the price increase. This tactic avoids the two price list system and offers the same “base” price to all customers regardless of their payment method.

While the settlement agreement will affect a large portion of vendors around the country, the states mentioned above will not see a change and vendors must continue to use means to recover surcharges passed on to them from the credit card companies from their customers.

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