Buffalo News
February 10, 2024

That fine print at the bottom of a restaurant menu, disclosing you will pay a surcharge if you use a credit card instead of cash?

That will no longer be an acceptable way for restaurants to tell customers about their two-tier pricing system – if they use one – under a state consumer protection law taking effect Sunday.

The new law applies to all businesses, including restaurants and retailers. Businesses can still charge different prices depending on whether customers pay with cash or credit cards. But they will have to be clear about it, and list the highest price a consumer might pay for an item.

The change will be especially pertinent at restaurants, which have embraced the credit card surcharges as a way of raising prices – or recovering the cost of credit card transaction fees – after being squeezed by rising prices.

As consumers continue to forsake cash in favor of credit card purchases, those transaction fees can add up. Industry analysts say those fees typically range from 1.5% to 3.5% per transaction.

As a result, some businesses pass along that fee to consumers in the form of a surcharge, to avoid cutting into their own profits. The new law requires merchants to be up front with consumers about their pricing system. Notice of a surcharge can’t be tucked away in the fine print on a menu or a receipt. Businesses can face fines of up to $500 per violation.

The new law also says businesses can’t charge customers a surcharge exceeding the processing fee charged to the business by the credit card company.

Amanda Powers, director of communications and marketing for the Retail Council of New York State, called the new law a “win-win” by making the pricing rules clearer for consumers and merchants alike.

“Retailers do not profit from a surcharge,” Powers said. “If a store is charging a 3% surcharge, they are merely recouping the fees they are being charged for that credit card.”

The thrust of the new state law is that customers shouldn’t be expected to “do the math” on how much they have to pay for an item, Powers said.

What the new rules require

Businesses have different ways to comply with the new law, according to the state Department of State’s Division of Consumer Protection:

  • They can list two different prices for the same item: one price for customers paying with cash, and the other for customers using a credit card.
  • Businesses can list only the higher of the two prices (excluding sales tax), but promote that customers can receive a discount of a certain percentage if they pay with cash instead.
  • Businesses can get rid of the surcharge altogether and charge the same price for cash and credit card purchases.

Businesses can’t comply simply by hanging a sign announcing they charge a certain-percentage fee for credit card transactions. They also can’t just disclose the difference as a line item at the bottom of a receipt, perhaps listed as a “processing fee.”

Even if a price tag lists a dollar amount, and alongside says the item will cost a specified percentage more using a credit card, that is against the new law. Instead, the price tag will have to list both dollar amounts – not just the percentage a customer would save using cash – or just the higher price, inclusive of surcharges.

Making prices more transparent

Whether it’s hamburgers, clothing or some other retail item for sale, merchants will have to give customers a clearer picture of how much they’re actually spending on a purchase, depending on how they pay.

“New Yorkers should never have to deal with hidden credit card costs, and this law will ensure individuals can trust that their purchases will not result in surprise surcharges,” Gov. Kathy Hochul said in a statement. “Transparency is crucial in building trust between businesses and communities and now patrons will be empowered to budget accordingly.”

Some in the restaurant industry say they’ve already been adhering to these pricing transparency guidelines – provided by the state Attorney General’s office – for some time, before the new law came along.

“The law is new, but the rules aren’t,” said Melissa Fleischut, president and CEO of the New York State Restaurant Association.

Fleischut said some restaurants previously tried a surcharge system, but found it too complicated.

“I’m seeing more places that are actually doing the cash discount – not posting the two prices, but are showing the higher prices and then giving a discount for cash.”

‘Swipe fees’ add up for businesses

Credit card usage became commonplace – if not required, in some cases – for customers at restaurants during the pandemic, to allow for “touchless” transactions.

Those swipe fees add up for businesses. For a restaurant, it might be their third-highest cost, behind food and labor expenses, or fourth, depending on what they pay for rent, Fleischut said.

Michael Tobin said he doesn’t use two-tier pricing at his two area Fresh Catch Poke restaurants. Over 90% of his customers’ transactions involve credit cards.

“With fast casual and online orders, it’s all kind of baked in there,” Tobin said.

Tobin said he has no problem with the new transparency law, but would also like to see federal regulation of the fees credit card companies charge merchants.

“From the consumer standpoint, I don’t think they understand that (business owners) are the ones who end up footing that bill,” he said.

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