Cash Discount Programs + Credit Card Surcharging: What New York Merchants Should Know

While cash discount programs have been legal in all 50 states for several years, it has not been easy for Merchants to implement such programs since the lines between cash discounting and credit card surcharging are very blurry—and, while cash discounting is legal, credit card surcharging is illegal in many states.

This has been the case in New York for some time now, but a January 2019 ruling in the New York State Court of Appeals will grant Merchants slightly more leeway with surcharging, and accordingly, cash discount programs (many restrictions do still apply, though). In this blog post, we’ll review the facts on cash discount programs and surcharges, as well as what New York-based Merchants need to know to abide with state and card-brand regulations.

A Quick Overview of the New Surcharging Ruling for New York

In simple terms, the January 2019 ruling reinterpreted New York’s existing merchant surcharging law. This law states that “No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.”

The abovementioned law has been in place for many years in order to protect consumers from unfair practices. However, in 2013, five New York merchants sued the state for violating their First Amendment rights to free speech. The case dragged on for six years until finally, the New York Court of Appeals gave its official reinterpretation this past January.

The New York Court of Appeals declared that merchants are allowed to charge one price to customers that pay with cash, and another price to customers that pay with credit card—but only if the merchant clearly posts the credit card price in total dollars-and-cents. If the merchant lists the cash price only and puts up a notice about an applied service fee for credit card transactions, then they are in violation of New York state law and will face fines or consequences.

The purpose of this new reinterpretation of the law, according to the Court of Appeals, is that customers should be able to clearly see the highest price they may have to pay, regardless of whether they ultimately choose to pay with cash or credit card. It no longer matters if the merchant describes the difference in price as a “discount” or “surcharge”; all that matters is that the higher price is also listed.

New York is currently proposing an amendment to the law which, if passed, would prohibit the addition of surcharges to debit transactions. The amendment would also further prevent card processors from restricting merchants and acquirers from offering discounts to customers that pay with cash.

Card Brand Regulations for Credit Card Surcharging Still Come Into Play

It’s important to note that New York merchants still need to be compliant with card brand regulations on credit card surcharging, or they could be dropped by the card brand. Although surcharging regulations slightly vary among card brands, here is a general list of card brand regulations that merchants should be aware of:

  • The Merchant must register to surcharge by notifying Visa and MasterCard.
  • The surcharge must be the same for all credit card transactions of that brand, regardless of the issuer.
  • The merchant must clearly list the surcharge fee on the receipt.
  • Every transaction must include a special indicator (flag) to pass along the surcharge fee. In order to do so, the Merchant’s equipment and bank platform must support or be certified for credit card surcharge fees.
  • The surcharge cannot exceed 4%.
  • The surcharge and the cost of the product or service must be processed together as one transaction.
  • If the merchant accepts multiple brands of credit cards, then additional limitations apply; for example, the merchant may need to ensure that all surcharges are applied equally.
  • Visa does not permit surcharging for debit cards.

Individual card brand regulations vary, so it is vital that merchants carefully examine any rules that may affect them.

Interested in Trying a Cash Discount Program?

There are no laws restricting cash discount programs; as mentioned, all relevant laws involve credit card surcharging.

In order to operate a legal cash discount program in New York state, the Merchant must (as previously mentioned) display both the cash price and the credit card price—either on the product display or on the receipt. This will ensure that the Merchant is compliant with New York state surcharging laws.

Merchants in other states where surcharging is legal can avoid having to post two ticket prices by applying surcharges rather than discounts—and accordingly, they must stay compliant with all surcharging regulations.

While Fidelity offers its own cash discount program, we heavily encourage Merchants to research all the facts on the ground and consider legal counsel if necessary. Plus, Merchants should realize that laws and regulations are always changing, so it will require constant vigilance to be compliant with state law and card brand rules.

For more information on our cash discount program, please reach out to our Customer Service department.