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March 25, 2024 • Issue 24:03:02
The inside scoop on differential pricing

By Patti Murphy cash instead of credit cards. There was also a U.S. Supreme
Court ruling in 2017, which made clear that card-brand bans
urcharging. Cash discounting. Dual pricing. The on surcharging violated merchants' free-speech rights.
nomenclature may vary, but the intent is the
same: charging more when a customer pays These two things set in motion a domino effect, with many
S using a credit or (at times even) a debit card. states dropping prohibitions on credit card surcharging.
Congress opened the door to differential pricing schemes New York was one of the last states to drop its prohibition
with passage of the Truth in Lending Act (TILA) in 1968. on credit card surcharging when, in December 2023, Gov-
That law specifically stated that card issuers "may not, ernor Kathy Hochul signed a new surcharging law for New
by contract or otherwise, prohibit" sellers from offering York businesses. It includes a requirement that surcharges
inducements to pay by cash, check or some other alterna- not exceed processing costs. It also requires that merchants
tive to credit. clearly disclose the cost of purchasing an item using a cred-
it card before a consumer makes a payment by card.
There was a catch, however: card issuers (as well as other
lenders covered by TILA) had to disclose the cost of credit. Today, surcharging remains prohibited in just two states:
Calculating the annual percentage rate of credit in advance Connecticut and Massachusetts. In the other 48 states, it
of every card payment for different goods and services was is permitted only on credit card payments (but signature
virtually impossible at the time. And the card networks debit cards are often treated like credit cards). And there
were averse to revealing those costs, anyway, so it didn't is no uniformity in the way states deal with surcharging.
catch on.

Of course, it didn't take long for Congress to reverse itself,
banning surcharges in 1976. It was a temporary step and Contributed articles inside by:
was renewed once, in 1981; by 1984, the federal ban had ex-
pired. In its place, many states passed laws prohibiting sur- Todd Robertson ....................................................................................15
charging and/or other forms of dual pricing within their
borders. Nick Cuuci................................................................................................28

Fast forward to 2010 and Congress reiterated its stance on Ken Musante ..........................................................................................30
differential pricing, with passage of the Durbin Amend- Scott Dawson .........................................................................................32
ment to the Dodd-Frank Act. The Durbin Amendment
made it clear that merchants are legally entitled to steer Casey Scheer ..........................................................................................34
customers to less expensive payment methods, such as

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