NY Credit Card Surcharge Law Challenges Out-of-State Merchants

New York’s new disclosure law addressing credit card merchant pricing and surcharges leaves open compliance questions for sellers operating outside New York that offer products and services to New York residents.

The law, signed Dec. 13, mandates merchants post the highest price a credit card user will pay for a purchase if the merchant surcharges for credit card use—starting Feb. 11.

The law requires merchants post the price of a good that’s offered when the customer uses another payment method such as cash, check, or debit card.

It also stipulates that any surcharge can’t be greater than the amount charged to the business by its credit card processor—such charges may only be assessed on a pass-through basis.

Failure to comply can lead to a penalty of up to $500 per violation. Based on the relevant definitions, the law applies to “any person who honors credit cards or debit cards which may be used to purchase or lease property or services.”

From a policy perspective, the law’s premise is that the immediate disclosure of the “credit card price” for a good or service will result in greater transparency for the consumer or purchaser who otherwise isn’t made aware of a surcharge until the checkout process.

In Practice

The disclosure law requires merchants post the highest price a customer will pay in connection with the use of a credit card to purchase a product or service. As a result, merchants that impose credit card surcharges will need to make a two-tiered pricing disclosure for each product or service offered for sale.

It isn’t clear how the law will impact “sellers” that aren’t located in New York but whose products and services are available to New York residents. For example, will merchants or ”sellers” in California, Texas, or any other state that offers their products to New Yorkers via e-commerce be exposing themselves to liability under the law if two-tiered pricing isn’t disclosed?

Based on initial guidance from the state’s Department of Consumer Protection, the law appears to apply only to New York businesses—without reference to out-of-state businesses that impose credit card surcharges on New York customers. To the extent this law is limited to New York businesses, it raises some noteworthy issues:

For internet-based transactions that facilitate customer price comparison shopping, New York businesses will likely see a fall-off in purchase volume vis-à-vis out-of-state sellers that sell the same product for the same price—given that New York businesses must disclose the higher, surcharge-included price with the item.

Even if the actual price is the same, the surcharge-included price will likely cause consumers to naturally purchase the product that appears to be less expensive. New York businesses that sell products on the internet may need to develop two different landing pages for its products offered for sale.

For example, a customer located in Pennsylvania doesn’t have the rights afforded to New York residents in connection with the surcharge disclosure law and would likely be less inclined to purchase a product where the surcharge is disclosed in connection with the initial product price.

Creating and monitoring the presentation of product pages based on a potential purchaser’s state of residence will create extensive technological and administrative burdens.

Although the NYDCP seems to limit its scope to New York businesses, there’s nothing that would prevent a New York customer from alleging deception in connection with an out-of-state merchant’s pricing disclosures that failed to include the all-in, surcharge-included cost of the product.

With respect to deceptive acts in commerce, NY Gen. Bus. Law Section 348 provides that “deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.” Notably, the law permits a consumer to bring an action based on deceptive actions or conduct in their name.

Visa Inc. recently announced enforcement efforts on credit card surcharging with payment processors, informing clients that compliance with their standards will be enforced and lapses could result in fines between $50,000 and $1 million.

Given the size of potential penalties, the numerous operational requirements that New York businesses must satisfy to comply with the law, and continuing state law requirements that make uniform operational practices challenging, it appears likely that many merchants that used surcharges may abandon them to limit exposure to various potential bases for liability.

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

Christina Grigorian is partner at Katten and advises banks, bank holding companies, and state-licensed consumer and commercial lenders.

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