Payments Law Tool Kit

Venable / 38 37 / Venable The result is not a discount, but a fee charged at the point of sale only to customers paying by credit card – in other words, a surcharge. Even in cases where surcharges are legal, merchants and other payments service providers should be aware that the card brands impose their own restrictions, including requiring a merchant to provide notice of its intent to impose surcharges to each network and the merchant’s processor at least 30 days in advance. A “surcharge” is typically defined as any means of increasing the regular price of goods or services for a cardholder that is not imposed upon customers paying by cash, check, or similar means. Currently, only ten states have laws prohibiting credit card surcharges. Surcharge prohibition laws in several states have been challenged in recent lawsuits on constitutional and other grounds. Many of these cases have proceeded under the argument that laws prohibiting surcharges, but allowing discounts, impermissibly regulate speech by regulating the communication of prices, not the prices themselves. Discount Programs If you’re active in the payments space, whether as an acquiring bank, processor, independent sales organization (ISO), or a merchant that accepts credit or debit cards, you’ve probably encountered the concept of “discount programs.” Such programs purport to allow merchants to recoup the cost of accepting payment cards without violating state laws prohibiting surcharges. But look carefully: Is that discount program actually a surcharge that violates surcharge restrictions? Laws that prohibit surcharges do not prohibit a merchant from offering a discount from the price of goods or services to encourage customers to pay by cash or other means, rather than using a credit card. However, the manner in which the merchant applies the “discount” is critically important. A typical program involves a service fee or other charge that is added to the cost of all purchases and then later waived or “discounted” for customers who pay by cash, check, or other method that is not a credit card. The argument is that the “discount program” creates discounts to the purchase price for cash, rather than increases to the price for credit card purchases. However, this discount program doesn’t actually create discounts; rather, it raises the posted price of all goods or services through a service fee that is then waived for non-card purchasers. Surcharging