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Surcharging in NY, Defeat or Victory?

In this episode today I’m discussing the surcharge laws in the state of New York. How do they relate to cash discounting and fifty-state surcharging? First, I must remind you that I’m not a lawyer; this is not legal advice. These are my opinions. As recent as a year ago surcharging was still not […]


In this episode today I’m discussing the surcharge laws in the state of New York.  How do they relate to cash discounting and fifty-state surcharging?  First, I must remind you that I’m not a lawyer; this is not legal advice.  These are my opinions.

As recent as a year ago surcharging was still not legalized in California, Texas, Florida, or New York.  Those are the four biggest states with the most processing volume.  Surcharging is now allowed in California, Florida, and Texas.  Things are moving rapidly. New York was the last big state standing.  Last week there was a questionable “victory” for surcharging in the state of New York.  In my opinion, I see it as almost a defeat.  Perhaps I agree the issue was moved forward a little bit.

I’d like to explain the difference between surcharging and cash discounting as a pre-requisite to this episode.

SURCHARGING:  The concept of surcharging is based on doing one thing, just one thing.  That one thing is adding a fee to credit card transactions.  Merchants are not allowed to add a fee on check and debit card transactions, only on credit card transactions.  Surcharging is one thing – adding a fee.  That’s what was not allowed in the state of New York.

CASH DISCOUNTING is two things.  Number one, it’s a price increase on everything in the store.  Number two, and totally separate from the price increase, merchants offer a discount to pay with cash.  Cash discounting is protected under the Durbin Amendment nationwide.  The amendment specifically says that no state or card brand association can prevent or prohibit a merchant from offering a discount to pay with cash.  However, what a cash discount means has been a hot-button issue as well lately.

Many people, including me, believe everything will go to surcharging rather than the current type of cash discounting within two to five years.  Thus, all eyes have been on New York to see what’s going to happen with surcharging.  Last week New York agreed to surcharging with stipulations.  The language used for the stipulation forbids adding a surcharge in such a way that the consumers would have to do a mental calculation to know the final price of their purchase.  In my opinion the stipulations are so ridiculous for many businesses that it is a non-issue; they are unable to surcharge.  For example, signs posted in the business informing consumers of a 3.99% surcharge would be insufficient  since consumers would need to calculate 3.99% to know their final price.  I think this is absolutely ridiculous for many, many reasons, not the least of which is that consumers very rarely buy just one item in a store.  So, do consumers ever know exactly to the penny what they are going to pay when they get to the counter anyway?  No, they don’t have a clue.

The law basically says merchants who want to do a surcharge program must post a cash price and credit card price on every item.  The reason why I think this was a loss rather than victory for surcharging is because it is really a cash discount.  If merchants go to all the trouble of marking two prices on all inventory or changing their restaurant menus to show two prices, why on earth would they do surcharging when cash discounting would be just as easy?  With cash discounting they could charge the service fee on everything and pay virtually nothing or just a monthly fee.

The whole benefit of surcharging so far has been that in a state that allows it, it’s legal.  Visa recognizes it’s compliant.  As a result, surcharging is easier to implement because merchants know it’s compliant.  For merchants, there’s no concern whether they’re doing the right thing when surcharging.

But with cash discounting Visa agrees in their bulletin that merchants can clearly be compliant and do a cash discount by showing the cash price and the non-cash price.  So in either case, merchants are required to post two prices on their inventory.  Doesn’t it make more sense for the consumer to realize, “Oh, I can get a discount if I pay with cash,” rather than, “Oh, you are charging me more if I use a credit card.”  To do a surcharge that way makes no sense!

My friend, Jonathan Razi at CardX, has been a leader in the fight for surcharging.  I will give a few statements from my email with him that I thought were interesting.

My question:  “Based on the New York law, do you think it would be compliant to do a per-item fee at the counter since consumers wouldn’t have to calculate a percentage.  Hopefully, they would know how to add 50 cents to whatever.”

His response:  “No, it is still not compliant because they have to calculate.  They have to add 50 cents to the order amount.”

My question: (Australia right now is about 62% surcharging.)  “Does Australia have the same requirements for signage?”

His response:  “To my knowledge, Australia does not require the same kind of disclosure as New York.  Australia requires the consumer to be notified that a fee would be applied and see the amount of the fee before the transaction takes place.”  So, a sign at the counter would be fine in that case.

The ruling in New York was interesting.  But in my mind, I think it just pushed everything back towards cash discounting.  Right now I believe the sales people who are dropping cash discounting in favor of surcharging are making a big mistake.  I don’t think New York merchants are going to do a compliant surcharge program, at least not retail merchants right now.  This law will need further challenge and improvement first.

If you’re selling surcharging, especially in New York, I think you’ll have two choices.

  • You’ll be selling something no one wants.
  • You’ll sell merchants who decide to do surcharging anyway with just a sign at the counter.

Well, then that second option means you’re not compliant.  So, why not just do cash discounting and add the fee to everything?  To me, the law just doesn’t make any sense.

To summarize my thoughts on the New York surcharge law:  Maybe we’ve moved forward a little bit.  At least now New York is allowing surcharge.  But at the same time, they put these ridiculous requirements in place for signage that in my mind make it impractical.  As I expressed to Jonathan, I think it really pushed back the concept of these larger national chains like Home Depot and Sears doing surcharging.  I don’t think they are ever going to add two prices on all their shelves.   Jonathan Razi calls it a “qualified victory” for surcharging.  In my opinion, I think it was actually a defeat for surcharging for two reasons.
  1. It created something that is just a mess.
  2. The requirements actually are going to push merchants more towards a true cash discount, a compliant cash discount.  To say to consumers,  “Here is the regular price and here is the cash price,” makes more sense than, “Here is the regular price and here is the higher price when you pay with a credit card.”  That is too confusing to consumers, especially when merchants must further say,  “But if you pay with a check card, it’s the regular price.”
I’ll be following this closely and updating you.   Right now, selling in the field I’ll be selling cash discounting.  By using Mynt POS and Paytech and these other POS systems where they put the service fee on everything and the cash discount as a separate line item, I’ll make cash discounting as compliant as possible .   I’m going to do everything I can to be compliant.  But I’m selling cash discounting until surcharging becomes realistic and something merchants want without all these crazy restrictions, especially if I’m selling in New York.

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