NRF urges Supreme Court to lift surcharging ban

The National Retail Federation recently voiced strong support for the plaintiffs in Expressions Hair Design v. Schneiderman, a lawsuit seeking to overturn New York State's ban on surcharging credit card transactions. Initially filed by 10 merchants against the state's attorney general in 2013, the case is now under review by the U.S. Supreme Court.

In a statement issued Jan. 10, 2016, NRF Senior Vice President and General Counsel Mallory Duncan urged the court to mandate fee transparency for credit card transactions. The issue is not surcharging per se, but about giving merchants the chance to show their customers the true cost of using a credit card, Duncan stated.

"It's about giving retailers freedom of speech when they try to give their customers a break for paying by cash," he said. "Some states allow cash discounts but prohibit credit card surcharges. A gas station owner shouldn't be hauled into court for saying gas is $2.90 a gallon cash and $3 credit rather than saying $3 credit and $2.90 cash."

It's complicated

Surcharging became legal Jan. 27, 2013, as part of a class action settlement against Visa Inc. and Mastercard, but was subsequently banned in California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. Also, U.S. Retailers, initially elated when surcharging became legal, were rapidly discouraged by the complicated implementation process in states where surcharging is not banned.

Visa and Mastercard advised merchants to review state guidelines pertaining to brand-level and product-level surcharging to ensure they comply with all criteria. Brand-level surcharges levy a uniform percentage on all Mastercard and Visa credit cards; product-level surcharges apply to specific types of Mastercard or Visa cards. The laws apply only to credit card products; debit and prepaid products do not apply, the card brands stated.

Merchants in U.S. states and territories that allow surcharging must also comply with rules and conditions, including:

• Notification: Participating merchants must notify Visa, Mastercard and their payment acquirers at least 30 days before activating surcharging practice.

• Disclosure: Signage informing consumers of merchant fees connected with their bankcard purchases must be posted in-store at merchant entryways, at POS devices and on payment receipts. Ecommerce disclosures must be visible on the first web page displaying credit card brands.

• Fee limits: Surcharging applies to credit cards only and may not exceed a merchant's discount rate or 4 percent, whichever is lower. Surcharging is not permitted on debit and prepaid cards. In addition, merchants may not require minimum purchases for credit card sales.

Penalties, prevention

Visa and Mastercard have been actively monitoring surcharge law compliance, particularly in states that outlaw the practice. The card brands have asked cardholders to report any irregularities to their state attorneys general. Violations could lead to stiff penalties. For example, New York retailers found guilty of surcharging could face $500 fines and year-long prison terms.

The complex implementation process and varying state regulations prompted some merchant service providers to help merchants achieve compliance by automating surcharge processing. Transaction Services, based in Omaha, Neb., developed customized terminal software and a payment gateway that details net deposit credit card transactions and gross deposits debit card settlement reports. Berwyn, Pa.-based JetPay Corp. created Limitless, a solution that automates cash discounts and credit card surcharging.

Constitutional rights

Many retailers petitioned state courts to lift their bans, claiming they violated their constitutional right to free speech, guaranteed in the U.S. Constitution's First Amendment and 14th Amendment's Due Process clause. Some states ruled in favor of lifting the bans, only to have their decisions overturned when the payment card brands appealed the rulings. The matter eventually escalated to the U.S. Supreme Court, which agreed to review the right of individual states to ban surcharging. The court heard the case Jan. 10, 2017, and a decision is expected by June 2017.

As the world's largest retail trade association, the NRF supports its members by challenging laws in the 10 states that prohibit surcharging. The trade association claims the payment card industry is the only party that benefits from the ban, which penalizes merchants who provide cash discounts to their customers.

"Banks charge merchants a fee averaging about 2 percent of the transaction amount each time a credit card is used, and a fee of at least 21 cents when debit cards are used," the NRF said in a statement to the press. "The fees total more than $50 billion a year and drive up costs for consumers because card industry rules effectively require [the fees] to be built into the price of merchandise."

Editor's Note:

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.