Can Texas Businesses Charge More For Credit Card Purchases?
It is confusing. Texas law states that it is illegal for a business to charge more when a customer uses a credit card. The laws against surcharges for using a credit or debit card are in Chapter 604A of the Texas Business and Commerce Code:
Sec. 604A.002. IMPOSITION OF SURCHARGE FOR USE OF DEBIT OR STORED VALUE CARD. (a) In a sale of goods or services, a merchant may not impose a surcharge on a buyer who uses a debit or stored value card instead of cash, a check, credit card, or a similar means of payment. […]
You would think that is the last word on the subject. Not so fast.
Many merchants sued the State of Texas, claiming this law was unconstitutional. They won.
According to a U.S. District Court Western District decision by Judge Lee Yeakel, the case of Rowell v. Paxton, 336 F. Supp. 3d 724 in 2018, that law IS unconstitutional. The judge ruled that the Texas code violates merchants' commercial free-speech rights under the First Amendment to the United States Constitution.
After this ruling, it became unclear whether The State of Texas could legally enforce the law prohibited charges for credit card transactions, and, since then, the charges have been popping up.
This issue is because credit card companies generally charge a business a fee for every credit card transaction they process. To recoup those charges, many businesses charge merchant fees. Merchant fees are legal in most states if the business follows proper procedures. There are two kinds of fees.
A convenience fee is charged when a customer uses a form of payment that isn't customary for the business. These fees are legal in all 50 states but MUST BE CLEARLY COMMUNICATED at the point of sale.
A surcharge is when a business charges a fee for a form of payment, whether in person, online, or by phone. Surcharging is often confused with "cash discounting." Cash discounting is NOT permitted by processing companies like MasterCard or Visa.
Cash discounting happens when a merchant displays prices for products or services but then offers cash customers a discount or refund at the point of sale.
A surcharge is very different. It calculates the merchant's credit card processing fee for any given transaction and adds that fee to the charge of the customer. The "price" charged to the customer is the same.
Legal surcharging must follow strict rules. First, the nominal charge must be precisely equal to the processing fee charged by the credit card company. It cannot be a penny more.
Second, the surcharge amount must be clearly disclosed as a separate line item on the customers' receipts.
Third, AND THIS IS VERY IMPORTANT. Surcharges must never be applied to a debit card transaction, even though debit cards look almost identical.
In addition, visible surcharging signage is required to inform customers that the merchant uses surcharging and to explain a customer's other payment options clearly.
Gas stations with one price per gallon for cash and a higher charge for credit fall under a category of business that relies heavily on convenience fees and surcharges.
Not every business passes credit card processing fees on to the customer. These businesses have a First Amendment right to NOT charge customers that is just as valid according to court orders striking down laws that forbid surcharges. Because businesses that do charge surcharges are required to give signage to that effect, consumers can look for businesses that do not charge.
Unfortunately, they are getting steadily harder to find.
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