Colorado recently became the latest state to eliminate a statutory ban prohibiting merchants from imposing a surcharge on customers who elect to pay for a transaction via credit or charge card. The Credit Transaction Charge Limitations bill signed into law by Colorado Governor Jared Polis on July 9, amends Colorado Revised Statute § 5-2-212 by eliminating the ban on surcharges; however, the law also imposes several requirements with which merchants must comply before imposing a surcharge on a customer.
New Requirements for Colorado Merchants
Amount of Surcharge
The Colorado law expressly limits the amount merchants may impose on customers as a surcharge to an amount not to exceed either (1) 2% of the total cost to the customer for the sales transaction, or (2) the merchant discount fee the merchant incurs in processing the card transaction. The merchant is not limited to the lesser surcharge amount and is free to choose either option. While most merchants likely will choose to impose a surcharge equal to the merchant discount fee incurred, the merchant ultimately must still comply with any limitations imposed under the card brand rules.
For example, a merchant may be subject to a merchant discount rate of 6% and elect to pass through that cost to a customer under Colorado’s new law. However, the Visa and Mastercard rules currently limit the amount a merchant may surcharge a customer to the lesser of the merchant discount rate or 4%. Thus, while the merchant may be permitted under Colorado law to impose a 6% surcharge on customers, the card brand rules would cap the surcharge at 4%.
Disclosure of Surcharge
Merchants subject to the Colorado law are required to (1) post signage visible to customers at physical locations in Colorado where a surcharge will be imposed, or (2) display before an online customer completes a transaction in a manner that is visible to the online customer, the following language:
“To cover the cost of processing a credit or charge card transaction, and pursuant to section 5–2–212, Colorado Revised Statutes, a seller or lessor may impose a processing surcharge in an amount not to exceed {either [2% of the total payment made for goods or services purchased or leased by use of a credit or charge card] or [the merchant discount fee that the seller or lessor incurs in processing the sales or lease transaction]}. A seller or lessor shall not impose a processing surcharge on payments made by use of cash, a check, or a debit card or redemption of a gift card.”
The above-bracketed language used by the merchant in the disclosure to customers ultimately will depend on the basis for the surcharge imposed on the customer as discussed above.
Additionally, the customer’s receipt must clearly denote the surcharge as a separate line item.
No Surcharge on Debit Cards
The Colorado law expressly prohibits the imposition of a surcharge on any transaction where a customer elects to pay using a debit card.
Violators Subject to Potential Criminal Prosecution
The newly enacted law is part of Colorado’s Consumer Credit Code and provides that any merchant who violates the law is subject to liability as a creditor. One of the harshest penalties under the Colorado Consumer Credit Code is that creditors who willfully violate the law may be prosecuted for a criminal misdemeanor.
While the new law provides Colorado merchants greater flexibility in determining whether to pass along the cost of accepting credit cards, the specific nuances discussed above require careful consideration and planning if you are considering imposing a surcharge on Colorado-based customers.
We will continue to monitor and provide updates regarding state no-surcharge statutes and any related court decisions or legislation as they develop. If you have any questions or any other concerns related to your organization, please contact the authors.
Below is an updated summary of the current status of the no-surcharge statutes in those states where such a statute previously was enacted:
| State | Relevant Statute | Status |
| California | Cal. Civ. Code § 1748.1 | Declared Unconstitutional
The United States Court of Appeals for the Ninth Circuit affirmed the district court ruling that California’s no-surcharge statute violates the First Amendment but declined to consider the issue of vagueness. Italian Colors Rest. v. Becerra, 878 F.3d 1165 (9th Cir. 2018) |
| Colorado | Colo. Rev. Stat. § 5-2-212 | Prohibition Repealed
See summary above. |
| Connecticut | Conn. Gen. Stat. § 42-133ff | Still in Effect |
| Florida | Fla. Stat. § 501.0117 | Declared Unconstitutional
The United States Court of Appeals for the Eleventh Circuit reversed the district court ruling and found that Florida’s no-surcharge statute regulated speech and violated businesses’ commercial speech rights, and thus was unconstitutional. Dana’s R.R. Supply v. Bondi, 807 F.3d 1235 (11th Cir. 2015), reh’g en banc denied 809 F.3d 1282 (11th Cir. 2016), denying cert. 137 S. Ct. 1452 (Apr. 3, 2017). |
| Kansas | Kan. Stat. Ann. § 16a-2-403 | Declared Unconstitutional by District Court
The United States District Court of the District of Kansas held that Kansas’s no-surcharge statute regulated speech and violated a credit card processing company’s commercial speech rights, and thus was unconstitutional. The district court declined to consider the issue of vagueness. CardX, LLC v. Schmidt, No. 2:20-cv-02274, 2021 WL 736322 (D. Kan. Feb. 25, 2021). Legislation to Repeal Pending The Kansas State Legislature is considering legislation to repeal the statute prohibiting merchants from imposing a surcharge on consumers who elect to pay via credit card. 2021 Kan. H.B. 2316, 89th Legislature (Feb. 10, 2021). Read our previous analysis of the Kansas court ruling here. |
| Maine | Me. Rev. Stat. Ann. tit. 9-a, § 8-509 | Still in Effect |
| Massachusetts | Mass. Gen. Laws Ann. ch. 140D, § 28A | Still in Effect but Legislation to Repeal Pending
The Massachusetts General Court is considering legislation to repeal the statute prohibiting merchants from imposing a surcharge on consumers who elect to pay via credit card. 2021 Mass. H.D. 2907, 192d General Court (Feb. 18, 2021). |
| New York | N.Y. Gen. Bus. Law § 518 | Still in Effect but Pending Further Review
The United States Court of Appeals for the Second Circuit held that New York’s no-surcharge statute did not violate the First Amendment and vacated the judgment entered by the district court and remanded for dismissal. On appeal, the Supreme Court of the United States held that the statute does regulate speech and remanded the case to the Second Circuit for further analysis. Expressions Hair Design v. Schneiderman, 808 F.3d 118 (2d Cir. 2015), vacated and remanded, 581 U.S. __, 137 S. Ct. 1144 (Mar. 29, 2017). Legislation to Repeal Pending The New York State Assembly currently is considering legislation that would repeal the state’s no-surcharge statute, 2021 N.Y. S.B. 4018, 244th Legislative Session (Feb. 1, 2021), as well as other forms of legislation that would repeal the existing law and replace it with one to comply with recent New York court decisions regarding how prices must be presented to consumers and limit the maximum surcharge merchants could impose on customers to 4% of the total cost paid for a good or service. 2021 N.Y. S.B. 4035, 244th Legislative Session (Feb. 1, 2021); 2021 N.Y. S.B. 1394, 244th Legislative Session (Jan. 11, 2021); and 2021 N.Y. A.B. 314, 244th Legislative Session (Jan. 6, 2021) |
| Oklahoma | Okla. Stat. tit. 14A, § 2-211
Okla. Stat. tit. 14A, § 2-417 |
Declared Unconstitutional by Attorney General Opinion
The Oklahoma Attorney General issued an opinion that Oklahoma’s no-surcharge statute does not facially violate the First Amendment but would not survive First Amendment scrutiny as it applies to commercial speech regulation, effectively stopping all enforcement of the statute. Okla. Attn’y Gen. Op. 2019-12 (Dec. 17, 2019) |
| Texas | Tex. Bus. & Com. Code Ann. § 604A.0021 | Still in Effect but Pending Further Review
The United States Court of Appeals for the Fifth Circuit held that Texas’s no-surcharge statute neither violates the First Amendment nor the Due Process Clause. The Supreme Court of the United States vacated the judgment and remanded the case to the Fifth Circuit (and subsequently further remanded to the district court) for further consideration in light of the ruling in Expressions Hair Designs. The matter is now pending before the United States District Court for the Western District of Texas. Rowell v. Pettijohn, 816 F.3d 73 (5th Cir. 2016), vacated and remanded, 137 S. Ct. 1431 (Apr. 3, 2017), remanded, 865 F.3d 237 (5th Cir. 2017). |