Will NY’s New Limits Herald the End of Credit Card Surcharges?

State by state, limit by limit, the age of credit card surcharges may be drawing to an end.

And while much depends on various legal outcomes, it is, ultimately, consumer sentiment that may push the practice of surcharging to the wayside.

As reported here on Monday (Feb. 12) and as is the law of the land in New York as of Feb. 11, New York has limited credit card surcharges to the amount that is charged to the firm by the card company. There’s also the mandate that merchants must post — before the checkout — either the total purchase price, inclusive of the surcharge, or a dual-tiered pricing option, which would list the cash price.

On that last option, the dual-tiered option, we note the impact might be to sway consumers toward debit purchases or outright cash options. And in the meantime, within the debit payment sphere, there’s ongoing debate over capping interchange fees tied to those transactions. For the card issuers, the shift to debit or cash may have at least some impact to revenues.

A Patchwork Approach to Surcharges

But more broadly: New York has become the latest state to look toward limiting the surcharges. As detailed here by Visa, Connecticut, Maine, Oklahoma and  Massachusetts prohibit surcharging. Merchants located in Colorado may not surcharge more than 2%. Puerto Rico also has a ban. Other states, such as New Jersey and South Dakota — similar to what has been seen in New York — limit the surcharges to a percent or two, or the cost of the processing fee, whichever is less.

For merchants, the patchwork nature of the regulations may be a challenge if they operate in more than one state. For merchants in general, no matter if they have multi-state operators or if they are as small as sole proprietorships, the risks of surcharges may outweigh the rewards.

The goodwill set in motion by the pandemic — when so many businesses had been struggling to survive and extra charges to offset everything from inflation to staffing needs to safety equipment and protocols and passed on extra costs to their customers — may be petering out.

PYMNTS Intelligence data show that surcharges were a staple of more than 14% of businesses surveyed, ranging from retail establishments to restaurants and as many as 8% of national or regional (and this multi-state) operators. More than half of consumers said they’d be more likely to switch merchants if asked to pay a surcharge; 77% said they’d switched to cash to avoid the surcharges. Switching to cash, of course, implies using coins and bills, or switching to debit if the individual favors using at least some form of a card “modality.”

There’s a flip side here, too. For the merchants who have hewed to credit card surcharges, the limits may spur them to shift to another means of top line torque: Raising prices beyond the card processing costs and/or surcharge limits. The balancing act is a tough one, as boosting prices of course may push consumers to either bargain-hunt, switch their allegiances to other merchants or rein in their spending for discretionary purchases like dining out entirely.