Credit Card Surcharge Changes Coming in July 2022

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Until last summer, Colorado was one of just three states that banned merchants from adding surcharges to credit card transactions. Through a law enacted in July 2021 that takes effect on July 1, 2022, Colorado has lifted the ban and will be the 48th state to allow surcharging. Connecticut and Massachusetts remain the only states to prohibit the practice.

Most states that have enacted similar bans have been mostly passive in their approach to permitting surcharges—meaning they default to Visa and Mastercard rules to determine surcharging practices in the state. Colorado has taken a proactive role in dictating the state’s surcharging rules, establishing some strict guidelines for merchants.

Here are some of the surcharging rules that Colorado will require of merchants:

  • No differentiating between fees and surcharges: Under the new law, any charges beyond the cost of the goods or services sold are considered a surcharge. That includes convenience fees, service fees, and surcharges. Surcharges are now defined as “any additional amount imposed at the time of the sale or lease transaction…for the privilege of using a credit or charge card.” That means all additional fees are subject to the same rule.

  • Surcharges limited to 2%: Under the new law, surcharges, which now include any additional fees, are limited to 2% of the amount of the sale or what the merchant actually pays to the payment processor. That’s in contrast to Visa and Mastercard surcharge caps of 4% or the merchant discount rate, whichever is less. So, it’s conceivable that a merchant can exceed the 2% cap if the payment processing fee is higher.

  • No surcharges on debit cards: Card brands have a much more restrictive approach to debit card surcharges versus credit card surcharges. According to card brand regulations, merchants are not permitted to add any fees to transactions made with debit cards or gift cards.

  • Greater transparency required: The Colorado law mandates that merchants use specific language to disclose surcharges, whether at a physical site or an e-commerce site. In addition, any surcharge must be included as a line item on the receipt. Also, no more than one surcharge may be assessed per transaction.

  • Law will be enforced through criminal prosecution: Merchants who willfully violate the new law can be prosecuted under the Consumer Credit Code. The code provides several penalties for violations, the most serious of which is prosecution for criminal misdemeanor.

The lifting of the surcharge ban in Colorado acknowledges two realities in the credit payments arena:

  1. Banning surcharges has proven to be a costly and losing battle. States are caving to the pressure of litigation brought about by trade groups and retail advocacy groups.

  2. Credit card processing fees represent a real cost to merchants.

Under Colorado’s law, as it is with other state laws, merchants are not required to add a surcharge but have the right to do so. In the case of Colorado’s law, the limitations on how surcharges may be applied and potential conflicts with the card brand rules require that merchants be especially careful when implementing a surcharge program.

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Alpine Bank Staff

Alpine Bank is an independent, employee-owned organization with headquarters in Glenwood Springs and banking offices across Colorado’s Western Slope, mountains and Front Range.

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