Thursday, June 10, 2021
The Colorado bill—SB21-091—passed overwhelmingly with bipartisan support in the state house and senate on June 9, and now heads to the governor's desk. The legislation sets forth required disclosures, maximum surcharge amounts and prohibitions on surcharging debit card transactions.
Michael Tomko, COO at CardX, said the Colorado law signals a shift by lawmakers toward more prescriptive surcharging laws. Lawmakers want to permit surcharging but want to define affirmative requirements for doing it the right way, he stated. CardX is technology company that helps merchants implement surcharging and cash discounting programs in compliance with card brand rules and state laws.
The move in Colorado comes just months after Kansas opened its borders to surcharging. A federal district court judge in Kansas ruled in February that the state's anti-surcharging law was unconstitutional because it specifically allows merchants to offer discounts to cash-paying customers, which, the court ruled, amounted to a restriction of free speech. Shortly after the court's ruling was handed down, lawmakers introduced legislation that would allow surcharging by merchants in Kansas.
Tomko praised the action in Colorado. "This is a landmark change for the payments industry, and the new Colorado law sends an unmistakable message that as surcharging expands nationwide, the surcharging space will continue to be defined by compliance first," he said.
Tomko noted that sponsors of the Colorado bill were aware of recent changes in state laws regarding surcharging, including the lawsuit challenging the Kansas law, which was filed by CardX.
CardX's founder and CEO, Jonathan Razi, testifying before Colorado lawmakers in support of the new law, suggested Colorado could face a similar legal challenge, as the state's anti-surcharging law closely mirrored the Kansas law. "If [the bill] does not become law, Colorado will face costly and unnecessary litigation challenging the constitutionality of its no-surcharge statute," Razi said.
In his testimony, Razi cited a Federal Reserve Bank of Boston study that found no-surcharge laws result in cash and debit card-paying customers subsidizing credit card users to the tune of about $1,300 a year. That's because absent an option to surcharge, many merchants respond to rising credit card processing fees by raising prices for all customer. "[W]ithout surcharging, customers using cash or debit cards—who are often underbanked and disproportionally lower-income—fund the convenience and rewards enjoyed by higher-income credit card users," Razi said.
In a statement to The Green Sheet, Tomko said, "Lawmakers have recognized that surcharging, when properly implemented, benefits both businesses and consumers. Many businesses, however, have struggled to introduce programs that are compliant with card brand rules. These businesses sometimes surcharge debit cards, charge excessive fees, or fail to make the required consumer disclosures, which has drawn scrutiny from regulators, even in states that don't have surcharge-specific regulations."
Tomko pointed to an advisory issued in February 2021 by the Tennessee attorney general's office, which warned that some Tennessee merchants may be misleading customers by "falsely advertising lower prices than they actually charge or hiding any differences between credit card, debit card and cash prices."
Meanwhile, CardX is "actively evaluating" options for encouraging changes to anti-surcharging laws in Connecticut and Massachusetts, Tomko noted. "[W]e'll encourage lawmakers there to take proactive steps to replace their existing laws and ensure their constituents have the same options that are available throughout the rest of the country," he said. 
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