This week, New York’s new surcharging law went into effect, replacing the prior surcharge ban which had been attacked at the U.S. Supreme Court (as discussed here). The old law was simply a wholesale ban on credit card surcharges, although since being reinterpreted by the New York Court of Appeals in 2018, it has not been enforced categorically. The new statutory language appears to be an attempt to codify the Court of Appeals’ interpretation under which surcharge programs are permitted so long as certain disclosures are made. Even the law’s title has been changed from the harsh “Credit Card Surcharge Prohibited” to the more reasonable sounding “Credit Card Surcharge Notice Requirement.” But do not be deceived by the seemingly innocuous updates. Merchants have begun to worry about the amendments and their concerns appear to be justified, particularly in light of regulatory guidance published this week by the New York Department of State (NYDOS), Consumer Protection division. The NYDOS’s Credit Card Surcharge Guidance goes far beyond current industry standards, prohibiting surcharge practices that the card brands and other regulators sanction and deem compliant.

Under the new law effective as of February 11, 2024, any seller in any sales transaction imposing a surcharge on a customer who elects to use a credit card in lieu of payment by cash, check, or similar means shall clearly and conspicuously post the total price for using a credit card in such transaction, inclusive of surcharge. Furthermore, any such surcharge may “not exceed the amount of the surcharge charged to the business by the credit card company for such credit card use.”  That provision itself is vague as merchants are not charged “surcharges” by credit card companies for credit card use.  In any event, the law continues by stating: “The final sales price of any such sales transaction, inclusive of such surcharge, shall not amount to a price greater than the posted price for such sales transaction.”

The statute expressly states that merchants are not prohibited from offering a “two-tier pricing system,” described as “the tagging or posting of two different prices in which the credit card price, inclusive of any surcharge, is posted alongside the cash price.” The problem with this formulation—and with the NYDOS’s guidance on implementation—is that it treats dual pricing as a permitted way to do surcharging rather than how dual pricing is generally understood (including by the card brands), in the context of cash discounting.

In short, the statute conflates surcharges with the generally understood cash discount model. To be clear: although the law purports to permit surcharges in certain circumstances with the proper disclosures, New York’s surcharge law does not permit the charging of surcharges as that term is commonly understood in the payments industry. And what it does allow as a permissible “surcharge” (i.e., posting the highest credit card price and offering a discount or utilizing a dual pricing model) is not really a surcharge at all, but is what is generally recognized as permitted under the cash discount rubric, independent of any surcharge regulation.

Under Visa and Mastercard rules, if a merchant wishes to implement a traditional surcharge, among other requirements, the merchant must clearly and prominently disclose the fee with signage at the point of entry and point of sale, and list the surcharge as a separate line item on the receipt. However, these actions are now explicitly labeled as “ILLEGAL” in the flyers included with the NYDOS guidance (available here and here). Similarly, posting a sign identifying a surcharge percentage amount to be added to the cost of the good/service (a practice generally recognized as compliant by the card brands) is touted as “ILLEGAL” by NYDOS. The guidance is clear that the only way to comply with the new NY surcharge law is to list or post the HIGHER credit card price inclusive of the surcharge in dollar and cents alongside a posted discount for cash purchase. This throws into question the ability for Merchants operating in New York to comply with both the card brands rules on surcharging and NY’s new surcharging law and certainly creates operational challenges for merchants that have built technology and systems around traditional surcharging practices.

Another consequence of conflating surcharges and cash discounts in New York is that it potentially opens up true (and otherwise compliant) cash discount programs and dual price models (which have historically not been subject to the rules and laws governing surcharges) to being regulated as a surcharge. Contrast New York’s guidance with Visa’s position that a discounted cash or debit price that is clearly displayed next to the higher credit price does not constitute an additional fee or surcharge that is removed when the customer pays with cash or a debit card. Yet, the New York law describes the difference between two prices presented on equal footing as “inclusive of any surcharge.” An aggressive reading of the surcharge law may allow regulators to subject these two-tier pricing systems to the limitations now applicable to surcharges in New York.

The penalty for violating New York’s surcharging law can be steep and includes liability for a civil penalty up to $500 dollars for each violation. Significantly, the enforcement mechanisms have also changed, as the law can now be enforced concurrently by the director or commissioner of a municipal consumer affairs office, or by the town attorney, city corporation counsel, or other lawful designee of a municipality or local government. What’s more, all monies collected from such enforcement will be retained by the municipality or local government, which incentivizes local governments to police surcharge compliance (including in borderline cases or where there are questions regarding interpretation). For many merchants, business as usual could quickly lead to unwanted attention by state regulators or local and municipal governments.

Several years ago the Supreme Court’s favorable opinion regarding the merchant challenge to New York’s anti-surcharge law kicked off a series of lawsuits nationwide in which lower federal courts stepped in to invalidate similar surcharge bans in other states. This, in turn, led the attorneys general and consumer protection agencies of other states to preemptively cease enforcement of their own state surcharge bans even if the law remained on the books. Based on these events, Visa removed the majority of states (New York included) from their list of states where surcharging is prohibited.  However, in light of the new surcharging law and the guidance issued this week, it seems that the “surcharging,” as that practice is understood and generally implemented across the payments industry, is once again prohibited in New York. Merchants implementing surcharge and cash discount programs in New York should reevaluate their programs in light of the new law and guidance.