New York’s New Surcharge Law: What You Need to Know

On February 11, 2024, New York General Business Law Section 518 (the “Law”) came into effect, ushering in significant changes in how surcharges are handled in transactions across the state of New York. The Law states:

• 518. 1. Credit card surcharge notice requirement. Any seller in any sales transaction imposing a surcharge on a customer who elects to use a credit card in lieu of payment by cash, check, or similar means shallclearly and conspicuously post the total price for using a credit card in such transaction, inclusive of surcharge, provided however, any such surcharge may not exceed the amount of the surcharge charged to the business by the credit card company for such credit card use. The final sales price of any such sales transaction, inclusive of such surcharge, shall not amount to a price greater than the posted price for such sales transaction. Nothing in this subdivision shall be deemed to prohibit merchants from offering a two-tier pricing system. For the purposes of this section, “two-tier pricing system” shall mean the tagging or posting of two different prices in which the credit card price, inclusive of any surcharge, is posted alongside the cash price.

1. Any seller who violates the provisions of this section shall be liable for a civil penalty, recoverable in an action or proceeding brought in a court of competent jurisdiction not to exceed five hundred dollars for each such violation. The provisions of this subdivision may be enforced concurrently by the director or commissioner of a municipal consumer affairs office, or by the town attorney, city corporation counsel, or other lawful designee of a municipality or local government, and all moneys collected thereunder shall be retained by such municipality or local government.

Signed by Governor Hochul on December 13, 2023, the Law aims to enhance transparency and consumer protection by regulating the imposition of surcharges on credit card transactions. Here is what you need to know about this new legislation and how it impacts both customers and businesses.

Understanding Surcharging, Cash Discounting, and Dual Pricing

Surcharging is the practice of imposing an additional fee on customers who choose to pay with a credit card instead of cash, check, or other similar means. It is essential to differentiate surcharging from cash discounting/dual pricing (which is referenced in the Law as “two-tier pricing”), where items or services are listed with both a card price and a cash price, and customers are offered a discount for paying with cash rather than a credit card.

Surcharging entails adding credit card processing fees to the regular price of a product or service for card users. It differs from cash discounting in several aspects:

• Surcharging is exclusively applicable to credit card transactions and cannot be imposed on debit card transactions.
• Pre-registration with the sponsor bank is mandatory for surcharging.
• Surcharging fees typically have a maximum cap of around 3% – 4% depending on the card brand for the card being used in a transaction.
• Surcharging necessitates specific disclosures at the point-of-sale and point-of-entry in merchant locations.
• No supplementary fees (service fees, convenience fees, etc.) can accompany the surcharge.

Conversely, cash discounting/dual pricing mandates:

• The regular “listed” price of a good or service must be equal to the “card price” (i.e., inclusive of the fees charged to the business by the credit card company for such credit card use).
• Should a merchant choose to offer a cash discount, customers paying in cash may receive a discount from the listed price at the point-of-sale.
• Card users may not receive a discount on the listed price of a good or service and must be charged the listed card price.
• Under a dual pricing program, the cash discount is disclosed to consumers “clearly and conspicuously” at all customer- facing sales points, meaning all inventory would need to be marked with both prices.

This background in surcharging and cash discounting/dual pricing is necessary to clearly understand what the Law mandates and prohibits.

Key Provisions of the Law

The Law lays out several crucial provisions that businesses and consumers must adhere to:

1. Businesses must clearly and conspicuously post the total price for using a credit card in any transaction, inclusive of the surcharge. This means that the final sales price, including the surcharge, cannot exceed the posted price. Additionally, a mere warning about credit card surcharges is not sufficient; the actual total price must be clearly displayed.
2. The surcharge imposed by a business cannot exceed the amount charged to the business by the credit card company for the use of the credit card. What this means in simpler terms is the surcharge cannot exceed the processing fees that the business incurs for a customer’s use of a credit card at the business.
3. The Law explicitly allows merchants to adopt a two-tier pricing system (think dual pricing), where both the credit card price (inclusive of any surcharge) and the cash price are posted. This dual pricing system provides consumers with transparency and the option to choose their preferred payment method.

The key takeaway from the Law is as follows: businesses MUST, BEFORE CHECKOUT, either (1) always list the highest price clearly (inclusive of all processing fees) or (2) list prices for both credit cards and cash (i.e., utilizing a dual pricing system) ensuring that the card price is listed first (as it would be a higher price) alongside the lower cash discounted price.

Enforcement and Penalties

Businesses found in violation of the Law may face civil penalties of up to $500 for each offense. Enforcement of the Law can be carried out by municipal consumer affairs offices, town attorneys, city corporation counsels, or other designated local government entities. Moreover, the Division (as defined below) specifically issued a notice encouraging consumers to either: (i) file a complaint with the Division to receive a refund of any excess fees paid to a merchant in New York State, or (ii) file a complaint with the Attorney General of New York State or participating local governments for the enforcement of a merchant consumers believed violated the Law. Given the foregoing penalties and enforcement mechanisms, it is critical for merchants to ensure full and complete compliance with the Law as the penalties they may face are substantial.

Consumer Protection Division Guidance

New York’s Department of State Division of Consumer Protection (the “Division”) has provided comprehensive guidance and materials to help businesses understand and comply with the Law. From examples of permitted surcharging practices to clear “dos and don’ts,” these resources serve as valuable tools for businesses striving to meet regulatory requirements.

Examples of some clear “dos and don’ts” regarding the Law are as follows:

DO:

• The business lists the higher credit card price next to a lower cash price.
• The business lists the credit card price for items and services, then lets customers know they will receive a discount for using cash.
• The business changes all prices to the credit card price.

DON’T:

• The business posts a sign on the door and at the register stating an additional 3.9 percent surcharge will apply for credit card purchases.
• “This business has a 4 percent cash discount incentive built into all pricing. Any purchases made with a credit or debit card will not receive the cash discount and an adjustment in cost will be displayed on your receipt.”
• A convenience fee, service fee, administration fee, non-cash adjustment, technology fee, processing fee, etc., is charged to credit card users and added as a separate line item on a customer receipt.
• The price tag of an item shows “$10.00, + 4 percent if paying with a credit card.”

NOTE: The Law does not apply to debit cards.

For more insight into the Division’s helpful guidance (along with clear infographics explaining what is legal and illegal under the Law), please visit the following links:

• Division Credit Card Surcharge Guidance
• Division Credit Card Surcharge Guidance (2)
• Division Examples of Compliant and Non-Compliant Surcharges
• NY Credit Card Surcharge Law

Final Takeaway and How Global Legal Law Firm Can Help

Navigating the intricacies of the Law can be complex, but our law firm is here to assist you every step of the way. Whether you are a business seeking guidance on compliance with the Law or a consumer who believes their rights have been violated, we offer expert legal counsel and representation.

Implementation of the Law represents a significant shift towards greater transparency and fairness in consumer transactions. By ensuring that businesses disclose surcharges upfront and adhere to price caps, the Law aims to protect consumers from unexpected fees and promote clarity in pricing.

If you have any questions regarding the Law, compliance requirements, or need legal assistance related to any of the complexities that make up the electronic payments industry, we encourage you to reach out to our firm. Global Legal Law Firm has numerous attorneys who are committed to helping businesses and consumers alike with confidence and clarity. Contact us today for personalized legal solutions and support tailored to your specific needs.

[Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are encouraged to seek professional legal counsel regarding their specific circumstances by contacting an attorney at Global Legal Law Firm.]

Written by: Leo Arzumanyan, Esq.

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