Gov't Relations Newsletter: Offering Surcharging & Cash Discount Programs: 3 Things You Should Know

Government Relations Newsletter: Volume 13 Issue 2

Offering Surcharging and Cash Discount Programs: Three Things Payment Service Providers Should Know

Compliance with card brand rules, however, is only part of the concern.  Several states have laws in their books that ban surcharging, though only a few states (including Connecticut, Maine, and Massachusetts) enforce them.  Several other states impose restrictions on surcharging that may be stricter than the card brand rules.  For example, Massachusetts prohibits surcharging by merchants but allows third-party payment processors to surcharge, subject to certain requirements.  New Jersey caps surcharges at the actual cost to the seller to process the card payment.  A few states permit surcharging so long as “single sticker pricing” disclosures are used, meaning the dollar amount or percentage of the surcharge to be added to the item price is listed with the item price.  A number of states impose disclosure requirements about where and how surcharge notices should be made.

The New York Attorney General is enforcing its state’s surcharge law, NY General Business Law Section 518 (NY GLB 518), which prohibits any seller from imposing a surcharge on any who elects to use a credit card instead of cash or other means unless the seller clearly and conspicuously posts the total price for using a credit card, inclusive of the surcharge.  New York law also specifies that the amount of the surcharge may not exceed the amount charged to the business by the credit card company for the transaction.  New York does, however, explicitly allow a two-tier pricing system, where two different prices for an item are posted:  the credit card price, inclusive of surcharges, alongside the cash price.

Substantial financial penalties may ensue for violating card brand requirements or state laws.  Violations of New York’s surcharge law may result in civil penalties of up to $500 per violation.  New York has coupled enforcement of its surcharge law in cases where the underlying allegations against the merchant are based on violations of other laws.  For example, in one recent case, New York sued the owners of a manufactured home park for various health and safety violations and added allegations that the landlord failed to post the total cost of monthly rent payments inclusive of a 3% credit card surcharge. 

On the card brand side, Visa pursues active enforcement of its surcharge policy through mystery shoppers and issues fines for rule violations that are ultimately passed down to the merchant.  Fines have been reported to be significant.  One New York lawmaker has taken the position that card brand enforcement of card brand rules is duplicative of NY GLB 518.  Noting that payment card networks have charged more than $100,000 to small business owners like bodegas, delis, and pizzerias for failing, this lawmaker introduced legislation in March 2025 that would prohibit any payment card network doing business in the State of New York from assessing penalties against any small business or financial intermediary for failing to comply with credit card surcharge notice requirements.  While the bill may be unsuccessful, it demonstrates that some lawmakers have taken notice of the card brand fines.

2. Know when state price transparency laws encompass surcharging. 

Effective since July 2024, California’s Honest Pricing Law, Cal. Civ § 1770(a)(29), requires that merchants advertise or list the “total price” of a good or service inclusive of all mandatory fees and charges other than government-imposes taxes or “reasonably and actually incurred” postage or carriage charges.  Guidance issued by the California Attorney General’s office has clarified that credit card surcharges need not be listed in the “total price” as long as the surcharge is not mandatory, meaning that consumers can reasonably avoid the fee by paying a different way (such as by cash).  However, according to the guidance, if the merchant only accepts credit cards as payment, then the credit card fee is mandatory and must be included in the total advertised price.

This could be a tricky issue for merchants, especially in the e-commerce space where cards may be the only practical method of payment.  What kind of notice might the merchant need to provide to consumers to inform them in advance of the surcharge including how they can avoid it?  Is it reasonable that consumers will always have a debit card on hand to complete the checkout and avoid the surcharge?  A proposed pricing law introduced in New York in March 2025 similar to the California “total price” law would define a mandatory fee to include surcharges “not reasonably avoidable to complete the purchase,” thereby leaving lots of room for surcharges to be covered and providing an additional avenue for fines and penalties aside from the existing New York surcharge law.

Dozens of lawsuits have been filed over the past year to enforce the California Honest Pricing law.  Examples include cases involving restaurant surcharges that aren’t disclosed until the bill arrives, ticket sales that tack on service fees later, and “convenience fees” or “processing fees” added by payment platforms.

The addition of “processing fees” by third-party payment platforms is especially interesting under “total price” law considering that the fee is often charged by and for the third-party platform and is not technically part of the price for the advertised good or service sold by the merchant.  However, this issue presents a host of other complications, including disclosure issues and card brand compliance.  Depending on context, state debt collection laws that prohibit adding fees to collect a payment may also apply.

3. Be careful about overpromising on the benefits to merchants of using a surcharge or cash discount program.

Many payment processors tout the benefit of credit card surcharging programs, often claiming that the merchant may recover all or most of the processing costs for card transactions.  Small- and medium-sized merchants are not likely to undertake their own legal analysis of whether and where they may implement a surcharge program, potentially putting the processor in the crosshairs if the merchant faces a compliance question or complaint.  Merchant groups have already proven to be litigious over pricing disclosure and savings claims they thought they were promised by sales agents.

As noted above, adding a surcharge to the price is often fraught with pitfalls.  To avoid these headaches, some processors offer cash discount programs, which provide a reduction in the price at the point of sale for consumers paying with cash or debit.  Cash discounting may be easier to reconcile with the New York surcharge law and state “total price” laws.  Nevertheless, processors may want to advise merchants to check compliance with state laws applicable to their business and help merchants make adequate disclosures and notices to their customers about cash discounts.

This article is provided for informational purposes only and is not intended to provide legal advice or opinion.  You should consult your attorney to receive legal advice related to your specific fact situation.