California, New York Credit Card Surcharge Bans Reshape Landscape

As the laws in California and New York are starting to reshape the practice of surcharging credit card fees, issues raised by the US Supreme Court about the balance of consumer protection and First Amendment rights have been raised again.

Most states permit surcharging—the practice of passing credit card transaction fees onto customers—but a handful, including California and New York, have laws banning surcharges. These laws typically aim to protect consumers from deceptive pricing or to promote transparency. Visa, Mastercard, and the other credit card networks joined the fray, historically prohibiting surcharges outright.

The turning point came with Expressions Hair Design v. Schneiderman, where the Supreme Court in 2017 held that New York’s anti-surcharge law regulated commercial speech rather than conduct, placing it under First Amendment scrutiny. While the case didn’t declare the law unconstitutional outright, it opened the door for challenges to similar laws in other states.

In 2023, the New York General Business Law amended Section 518, replacing the surcharge ban with a requirement to post an item’s total price if paying with a credit card, including the surcharge. Similarly, California Senate Bill 478, which took effect July 1, 2024, prohibits surcharging unless the total price being advertised reflects the surcharge percentage.

At the heart of the legal debate surrounding attempts to limit surcharging is whether these laws infringe on merchants’ First Amendment rights. The First Amendment protects political speech and commercial speech, albeit to a lesser extent.

In Expressions Hair Design, the justices determined that surcharging laws regulate commercial speech rather than conduct. They noted that traditional approaches of advertising a single cash price, plus a surcharge percentage for credit card payments, are problematic.

They also said that when a single price is displayed, it must be the higher surcharged price. This opened the door for states to implement laws such as those in New York and California.

Merchants in New York and California continue to argue that the new statutory requirements dictate how they communicate with customers and infringe on their autonomy to craft pricing strategies. States counter that these laws are necessary to prevent deceptive practices and ensure consumers understand the true cost of goods and services.

Larger retailers with operations across multiple states must navigate a patchwork of laws to ensure their pricing practices meet state-specific requirements. California’s prohibition of surcharges, coupled with its stringent disclosure mandates, requires a complete overhaul of pricing strategies.

Similarly, New York’s dual-pricing requirement imposes additional administrative burdens. Many retailers are pausing surcharging practices in these states to avoid significant compliance costs.

These challenges are acute for smaller businesses, which may lack the resources to implement complex pricing systems. Ensuring compliance involves adhering to disclosure requirements and avoiding potential penalties, which can be steep.

For example, violations of California’s SB 478 and Section 518 of the New York General Business Law carry fines of $1,000 and $500, respectively, per instance, creating substantial financial risk for non-compliance.

Other states likely will follow New York and California—Minnesota’s Statute 325D.44 is one example. As states refine their surcharge laws, litigation likely will intensify, with interplay between consumer protection and free speech as a focal point.

In the short term, businesses should anticipate greater scrutiny of their pricing practices and invest in compliance systems to navigate these complex regulations.

On a broader scale, federal intervention could equally reshape the landscape. The Federal Trade Commission in December issued its final junk fee rule, requiring that surcharges be included in the total sales price if they are mandatory.

Surcharges don’t need to be part of the total price if consumers can use other payment methods. This potentially introduces national standards that provide a basis to preempt state laws and raises new questions about federalism and the scope of regulatory authority.

States also are likely to push surcharging restrictions into new areas. For example, Illinois prohibits surcharging of any transaction’s tax portion.

The legal landscape surrounding surcharging, once thought to be settled, is becoming more complicated. Businesses must adapt to an environment in which states lead the way in regulating how merchants disclose and implement surcharges.

At the same time, the First Amendment’s protection of commercial speech ensures these laws remain subject to judicial scrutiny. The coming years will be pivotal in defining the balance between transparency, consumer protection, and free speech.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Will Atherton is partner at Reed Smith, focusing on fintech, money transmission, and payments.

Write for Us: Author Guidelines