State by state, depending on where one looks, merchants’ ability to surcharge may face pressure.
To that end, at the end of last month, New Jersey’s state legislature voted unanimously to cap the surcharges that merchants can levy on their customers.
In addition, the bill mandates that businesses inform their customers — verbally and via signage for face-to-face transactions, and verbally too for transactions over the phone as well as on websites — of the charges.
The limits decree that the surcharge cannot exceed 2.5% of the total amount paid by the customer, or the costs incurred by the merchants as they accept the card payments themselves.
Non-compliance carries a hefty charge, where businesses can be fined thousands of dollars in the event the caps and rules regarding disclosure are not observed.
We note, too, that the 2.5% cap mentioned above is lower than the 4% cap that has been imposed by the likes of Mastercard and the other payment networks. As has been widely reported, the surcharges apply on to credit card transactions; debit card transactions are not part of the equation.
Only a small subset of states have banned surcharges outright — Connecticut and Massachusetts, and separately, Puerto Rico does, too. Maine and New York are among the states that mandate additional disclosure on credit card surcharges, mirrored by New Jersey’s most recent actions. In other cases, states like California have sought to prohibit merchants from embracing surcharges, but those actions have been challenged in court, as detailed here by the National Conference of State Legislatures.
The debate over, and the legislative efforts targeting, surcharges might heat up, given the fact that, as PYMNTS found in recent research, more consumers are wielding credit cards to field their daily expenses. The data gleaned from “Credit Card Use During Economic Turbulence,” a PYMNTS and Elan Financial Services joint effort, shows as many as 77% of consumers overall have cards. Fully one-third of those cardholders have increased their credit card spending over the past year. And drilling down a bit, 43% of Gen Z consumers have been using their cards more often.
And yet, as to the surcharges themselves, separate research shows widespread acceptance on the part of consumers, with some pockets of discontent. Last year, as we noted in a report with Payroc, 88% of the cardholders who faced surcharges agreed to pay them. Roughly 2 out of 3 cardholders say they check their receipts for additional charges. And, as we found, 44% of credit card users declared they would be “very” or “extremely” likely to switch merchants when surcharges are applied. There’s at least some movement toward switching as, and when, these consumers face the surcharges. The data show that 71% of cardholders have used cash to avoid surcharges; 40% have used debit cards.
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