Magazine article Business Credit

Credit Card Surcharging for B2B Transactions: Finality at Last?

Magazine article Business Credit

Credit Card Surcharging for B2B Transactions: Finality at Last?

Article excerpt

For many years, companies were of the opinion that it was "against the law" to pass through a credit card surcharge to ones customer. For the purpose of this article, a "surcharge" is defined as the cost to the business for credit card transactions. It turned out, for the most part, that the prohibition was not statutory. Rather, the prohibition stemmed from the contracts which businesses signed with the credit card companies and within those contracts was the prohibition against passing along those costs.

The "No Surcharge Rule" gained attention when multiple antitrust lawsuits were commenced against the various credit card companies asserting combinations and conspiracies among them that raised, fixed, stabilized and maintained, at artificially high levels and non-competitive levels, the interchange fees and merchant discount fees. The lawsuits alleged that merchants were deprived of the benefits of free and open competition in the market for credit card network services and that price competition in the provision of credit card network services to merchants was restrained, suppressed and eliminated.

Most of these antitrust lawsuits were settled in 2013 and 2014. Some lawsuits are still pending, and some of the settlements have been re-opened. Nevertheless, Visa, Master Card, and basically all the rest of the credit card companies have changed their rules to permit the passing through of the "merchants" surcharges by the merchants to their customers to reflect cost differences among various payment methods.

As of 2014, 10 States, Plus Puerto Rico, Had 'No Surcharge' Rules

At the time of the antitrust lawsuits settlements, 10 states, plus Puerto Rico, actually had statutes that prohibited the passing through of surcharges. These states with their respective statutes are:

* California Civil Code, 1748.1

* Colorado Revised Statutes Annotated, 5-2-212

* Connecticut General Statutes Annotated, 42-133ff

* Florida Statute, §501-0117: determined to be unconstitutional

* Kansas Statutes Annotated, 16-a-2-403

* Maine Revised Statutes Annotated, Title 9-A, 8-303

* Massachusetts General Laws Annotated, Chapter 140D, 28A

* New York General Business Law, §518: determined to be unconstitutional

* Oklahoma Statutes Annotated, Title 14-A, 2-211

* Texas Finance Code Annotated, 339-001 (a); and

* Laws of Puerto Rico Annotated, Section 11

An analysis of these statutes led to an interesting discovery:

* Colorado, Kansas and Maine have adopted the Uniform Consumer Credit Code and the prohibition is contained in that statute

* California's statute specifically uses the word consumer

* Massachusetts' statute is included under "Consumer Credit Cost Disclosure"

* Oklahoma's statute is under the title "Consumer Credit Code"

* Texas' prohibition regarding surcharge is specifically enforced only by the Consumer Credit Commissioner

* Puerto Rico's statute specifically uses the word "consumer"

The remaining states (Connecticut, Florida and New York) have or had language that is unclear as to whether it applies only to consumers or includes commercial transactions. Therefore, these were the only states with which companies dealing only in business-to-business (B2B) transactions had to be concerned. Currently, Connecticut is the only state in which this author recommends businesses should not pass through their credit card surcharges in connection with either consumer or commercial transactions.

SCOTUS Ruled on Constitutionality of Florida and New York Statutes

It is useful to explain here how the federal court system works. The trial court for all federal cases is the United States District Court. Any appeal from a United States District Court is appealed to the Circuit Court of Appeals. There are 13 Circuits throughout the United States. These are the First through Eleventh Circuits, plus the District of Columbia Circuit and the Federal Circuit. …

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