Some California businesses, but not all, are exempt from surcharge ban

After 9th Circuit Court ruling, there is a lack of clarity about enforcement

Your Business Credit with Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Is it true that only the five businesses who sued over the surcharge ban in California are allowed to add a surcharge for debit and credit card purchases? 

According to the Califorinia attorney general's website, these specific parties are excused from the law. Other businesses will be judged on a case-by-case basis.

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Dear Your Business Credit, 
You need to update your information on debit and credit cards in California. The law has changed again. It’s now illegal once again, except for the five parties who sued, to charge any fee for using a debit or credit card in California. Please read the 9th Circuit opinion. NEVER has a contract between parties trumped state law! – John  

Dear John, 
Thank you for writing in response to my column “Can my gas station charge me for using my card?

In the event other readers had similar concerns, I ran your comment past Jen Lee, the attorney I interviewed for that column.

“You covered this in the original article,” Lee responded in an email. “Technically, the 9th Circuit opinion applies only to the five entities that filed the suit, meaning, only those five entities have the official blessing of the court to pass on the processing fee. The theory is that other entities that are using the exact same structure would also prevail, but it’s not guaranteed. That’s why we gave best practices, with the understanding that it’s a very gray area right now.”

Lee stressed that this is her interpretation of the law. “I think the biggest issue here is the unknown,” she wrote. “No one knows what the state is enforcing and everyone thinks they are right.”

Surcharge allowed in some cases, not all

It does appear there is a lack of clarity as to how the state will be enforcing this at the moment. With regard to the January 2018 9th Circuit opinion, the state attorney general’s office currently says on its website:

“In 1985, California passed a law that prohibited merchants from adding a surcharge (an extra fee) when customers pay by credit card instead of cash. That law does allow merchants to give customers discounts for paying by cash, check, or debit card, as long as that discount is offered to all customers. The law was challenged by several businesses, and in January of 2018 a federal court held that the law could not be enforced as to the businesses which brought that case, but did not generally prohibit its enforcement. Therefore each use of a credit card surcharge would need to be evaluated based on its own particular facts.

“In any case, merchants are not allowed to mislead customers, such as by falsely advertising a lower price than they actually charge or hiding any differences between credit card, debit card, and cash prices. If a merchant fails to clearly and prominently disclose—before you pay or seek to pay for an item—what it will charge for the item, including any additional fees, that may violate California laws prohibiting deceptive or false advertising. Be sure to check the cash register display and your receipt to make sure that the price you're being charged matches the advertised or posted price of an item (plus tax, if applicable).”

Neither Lee nor I are clear on what you’re referring to as a contract between parties trumping state law, so I have not addressed this.

A surcharge could lead to trouble

My advice for business owners in California who are thinking of adding a surcharge to credit card purchases is to ask your attorney for advice. This is an evolving area, and as such, could be a can of worms.

Tip

Tip: Business owners in California who are thinking of adding a surcharge should ask their attorney's advice first. 

As the California Attorney General’s Office puts it on its website, “If you believe a merchant is improperly charging customers, failing to disclose what it is charging, or otherwise engaging in false or misleading sales practices, you should file a complaint with the Attorney General's Office.”

Many people grumble about surcharges, and we’re likely to see more complaints about them, so this is an area where you want to be very careful.

See related: Card surcharge ban laws take another blow in California court, Convenience fees: When is it OK to charge extra to use a credit card?


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Updated: 08-16-2018