Is Your NY Small Business Allowed To Have Credit Card Surcharges? text with image of credit card machine

You’ve encountered the situation as a consumer, no doubt. You go to pay for your item and you see a small sign taped to the cash register, “3% surcharge for all credit cards.” You either switch to cash or you go ahead and pay the extra fee that is tacked on.

If you operate a small business in the state of New York, you may be wondering if you can do the same thing. Section 518 of the General Business Law, which, in no uncertain terms, makes it illegal for merchants to charge extra if a customer wants to use a credit card. New York enacted section 518 in 1984, and although it was modeled on a federal law, it was just vague enough to pose problems, especially when it came to interpreting certain terms it contained. However, the New York Court of Appeals has issued a ruling that provides some guidance on the issue. 

Credit Card Surcharges Permissible Under Certain Circumstances

The short answer is that merchants must comply with certain requirements if they charge different prices based on the customer's payment method. Two of the critical things that a merchant must do are (1) state the policy or price clearly and in advance, and (2) not force the consumer to handle the math involved to determine the price of an item if they pay with a credit card. However, debit card users don't have as many protections as credit card users as they are accessing their bank account directly, and not borrowing money from a credit card company.

Perhaps the simplest way to explain the requirements and differences is to refer to the following chart for various scenarios.

Examples and Scenarios for Compliance

Examples and Scenarios 

       

Debit Cards 

               

Credit Cards 

Percentage Discount: A store 
posts a sign on the door that reads, 
"Pay with cash to receive a 3% discount." 

       

Compliant 

               

Compliant 

Cash Discount: A store 
posts signs at its registers that read, 
"Pay with cash for a $2 discount." 

       

Compliant 

               

Compliant 

Different Prices: A store lists two
prices for each item, and the signage 
states that the first is the price customers
pay if they use a debit or credit card, while
the second price is what they pay if they
use cash.

       

Compliant 

               

Compliant 

Percentage Fee: A restaurant's 
Menu includes a notice that a 5% fee will 
be added if customers pay with a debit 
or credit card.

       

Compliant 

               

Violation 

Flat Fee: A grocery store posts 
signs at its registers that state, "A $5 fee
will be charged on all debit or credit card
sales."  

       

Compliant 

               

Violation 

Surprise Fee: A couple orders
lunch at a fast-food restaurant. The cashier
states a total, but when the customer offers
a debit card for payment, the cashier states
that the total is now $2 more since they are
not paying cash.

       

Violation 

               

Violation 

Post-Purchase Charge: Three
friends dine at a nice restaurant and
request separate checks. Prior to presenting
the checks, the server asks how they will
be paying. One plans to use a debit card, one
plans to use a credit card, and the third friend
is paying in cash. When they examine their
checks, they find that a service fee has been
added to the bills for the first two friends.  

       

Violation 

               

Violation 

Notice of a Percentage Fee: A sign 
in a veterinarian's office reads, "A surcharge
of 3% will be added for all debit and credit 
card transactions."

       

Compliant 

               

Violation 

Free Products: A convenience 
store posts signs at their gas pumps that state 
that customers who pay cash are entitled to a free
16-ounce cup of coffee. 

       

Compliant 

               

Compliant 

Different Pay-at-the-Pump Prices: A gas 
station posts a sign stating its price-per-gallon,
and this matches the sign on the pump. However,
another sign at the pump gives a lower price-per-
gallon if customers pay inside with cash.  

       

Compliant 

               

Compliant 

Takeaway

As you can see, the issue has its fair share of complexities. If you want to recover the fees you experience from credit card companies, the easiest, compliant way is to raise your prices by the applicable percentage on all products and display those prices. Then, when a customer pays via a different method, offer a discount, a free product, or some other incentive.

Save this graphic for reference:

Are Credit Card Surcharges Allowed in New York State? Infographic

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Francine E. Love
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Founder and Managing Attorney at Love Law Firm, PLLC which dedicates its practice to New York business law