Limiting Statutes as to Surcharges in Merchant Processing

credit card swipe


By Arlette Gomez

Using a credit card to pay for goods and services is a fairly common practice. Many credit card users, however, are unaware that every time a credit card is used, the merchant is charged a “swipe fee” or “interchange fee” by the credit card company. This fee must be paid by someone. But who?

Some merchants may opt to have the fee paid for by the consumer by imposing a surcharge. Florida statutes define a surcharge as “any additional amount imposed at the time of sale or lease transaction by the seller or lessor that increases the charge to the buyer or lessee for the privilege of using a credit card to make payment.” Most credit card companies have rules that limit how much of a fee can be transferred over to the user of the credit card, in the hopes of preventing merchants from using a surcharge as means to profit off of credit-card usage. Up until 2015, Florida had laws prohibiting credit card surcharges. As a matter of fact, Florida statute still reads that a seller or lessor in a sales or lease transaction may not impose a surcharge on the buyer or lessee for electing to use a credit card in lieu of payment by cash, check, or similar means, if the seller or lessor accepts payment by credit card.” Fla. Stat. §501.0117.

This all changed in November 2015 when the Eleventh Circuit struck down the language in §501.0117 as unconstitutional. Dana’s R.R. Supply v. Atty. Gen., Fla., 807 F.3d 1235, 1239 (11th Cir. 2015). This issue arose when Florida’s Attorney General delivered four cease and desist letters to four different businesses for imposing a “surcharge” on credit card transactions under the statute. Id. The businesses argued that the surcharge was legal in Florida, but the law unconstitutionally prohibited the use of the word “surcharge.” The Eleventh Circuit found that the statute violated the business’ First Amendment right to freedom of speech by placing a limit on the use of the word surcharge. Id.

The case hinged upon whether the law regulated speech or conduct. Regulation of speech meant it had to pass First Amendment scrutiny. A much higher level of scrutiny than would be required for a regulation of conduct. In Dana, the Eleventh Circuit found that technically speaking, “surcharges and discounts are nothing more than two sides of the same coin; a surcharge is a negative discount, and a discount is a negative surcharge.” Id. at 1239.

Under this decision, credit card surcharges have been deemed legal as long as the businesses who use them follow protocols that ensure full transparency. Imposing the charge on the consumer. H called “carrying forward.” In Florida, retailers must register the surcharge with the payment network. Then, they must display a notice of the surcharge at the point of sale, ensuring that the consumer is aware of the charge. This is not limited to brick-and-mortar stores, as it transcends onto online commerce as well. The existence and amount of the surcharge should be reflected in the consumer’s receipt. Not disclosing a surcharge constitutes an unfair or deceptive trade practice.

While carrying forward the surcharge cost to consumers seems like the most ideal practice, there are instances in which that is not the case. Though it is increasing in popularity as court decisions and legislative changes have confirmed its legality as an option for merchants, consumers do not like being charged these additional fees at every purchase. In a competitive market, surcharges be the deciding factor among consumers when they decide where to shop. This can cost a merchant more in lost customers than it would in surcharge costs. However, smaller more niche businesses with a locked-in customer base can likely get away with carrying forward the surcharge costs and lower operating expenses because people will pay anyway.


Surcharges v. Convenience Fees

Convenience fees differ from a surcharge in a number of ways. Most importantly, a convenience fee (though it varies by issuer) can be charged when a merchant offers an alternative payment method that is different from how it usually conducts business. In other words, if the merchant is taking an extra step to facilitate a different form of payment that differs from its traditional practice, it could potentially charge a convenience fee.


Surcharges v. Cash Discounts

Unlike the newly legalized surcharge fees, merchants have always had the option to offer cash discounts on the advertised price. This works by having the advertised price include the credit card fees, which indicate to the consumer that there is a discount should they pay in cash. Florida Statute §501.0117(1) also provides that there is no prohibition to the offering of a discount for the purpose of inducing payment by cash, check or other means not involving the use of a credit card if the discount is offered to all prospective customers.

All in all, while the Eleventh Circuit decision remains good law, surcharges are legal as long as they are fully disclosed to the consumer, and do not constitute unfair and deceptive trade practice.