If you are a merchant or business owner in the state of Colorado, then you are aware or should be aware that it is illegal to charge or impose an additional fee when a customer uses a credit card as a form of payment. This is not to be confused with convenience fees or discounts, and there are a few exceptions to the law.
Some merchants in states where there are anti-surcharge laws are paying thousands of dollars in fees each month when consumers conduct credit card transactions. The Colorado credit card surcharge law is a good example.
What is a surcharge?
This charge is an additional fee that is placed by a merchant or business and charged to a consumer for the privilege of using a credit card for their purchase. Credit card processing companies or merchant services companies will charge the merchant a fee for accepting credit card payments.
Convenience fees are not surcharges they are fees that are imposed when a business or merchant provides another payment channel for your convenience. For example, a business allows you to pay over the phone or online, rather than the physical location of the business.
Discount fees are commonly used with businesses and merchants. It is a discount for using alternative payment methods such as cash or check, and it is legal because it is provided to all consumers prior to making a purchase.
Where is it illegal to impose this charge?
There are currently 5 U.S. states and territories that have an anti-surcharge law that is enforced and in effect. The following states make it illegal for a merchant to a surcharge to credit card purchases:
- Puerto Rico
The following states have anti-surcharge laws, that are not enforced due to recent court rulings:
- New York
The states that do not enforce the anti-surcharge laws but still have them in effect, states that the courts are not hearing those cases.
What you should know
The maximum that can be added to consumer purchases is 4% of the transaction. There are protocols that must be followed when businesses decide to add the surcharge. When using the Visa or Mastercard network, the merchant or retailer must choose between adding this charge to all credit card transactions in the payment network or if it applies to a certain type of Visa or Mastercard.
A merchant must also display a notice in-store, online and it must be indicated on a customer’s receipt. This notice needs to be posted upon entry to your store informing consumers that there is a surcharge on credit transactions. It also needs to be posted and displayed when a customer checks out.
These fees are to be registered with the designated payment network and you need to notify your merchant services provider at least 30 days in advance prior to applying surcharges.
There are some states where a merchant must display the cash price alongside the credit price when a cash discount option is being used. In Minnesota, retailers that have store cards that are used as a form of payment are prohibited from adding a surcharge. Not every state is exactly like the colorado credit card surcharge law so be sure to do your research.
The exceptions to the laws
State and local government agencies are excluded from the Surcharge law. Debit cards and prepaid cards are not applicable to surcharges when used as a form of payment. This includes when purchases are made with a debit card being used as credit.
Why is it illegal?
According to the Colorado Surcharge Law, a merchant who chooses to accept credit card payments is not allowed to apply surcharges when the purchaser uses a credit or charge card rather than cash, check, or other forms of payment. These laws are in place to protect consumers from “unscrupulous vendors and predatory lending practices.”
It is recommended that businesses and merchants think long and hard before applying surcharges to consumer purchases. While it is a way to recoup some of the fees that are charged to merchants that accept credit card payments, it could affect your business. The Colorado surcharge law is a good example of this.
If you decide to implement surcharges for credit card transactions, you need to make sure that you are following the guidelines and that you work with your merchant services provider.