who pays business transaction processing fees

Beware: Business Transaction Processing Fees, Who Pays Them?

There is a lot of confusion about who must pay those pesky credit card transaction fees. Are business owners expected to take on these fees? Can they pass the fees off to their customers? Many business owners choose to pay credit card transaction processing fees themselves, giving the impression that they have no choice.

The Legal Landscape

According to Tex. Bus. and Com. Code §604A.0021 (a) “In a sale of goods or services, a seller may not impose a surcharge on a buyer who uses a credit card for an extension of credit instead of cash, a check, or similar means of payment”. There are some exceptions to the rule in Tex. Bus. and Com. Code § 604A.0021. (b)” (1) a state agency, county, local, governmental entity, or other governmental entity that accepts a credit card for the payment of fees, taxes, or other charges; or (2) a private school that accepts a credit card for the payment of fees or other charges, as provided by Section 111.002, Business & Commerce Code.”

Legal Implications and Challenges

Most businesses see this and believe they must take the financial loss, void of any other possibility. The fine for this violation could quickly add up to a significant amount, as you may be liable to the state for a civil penalty in the amount of up to $500 for each violation. Tex. Bus. and Com. Code § 604A.003. In Rowell v. Paxton, 336 F. Supp. 3d 724 (W.D. Tex. 2018), Texas merchants argue that the State cannot enforce actions upon businesses that represent to their customers a surcharge price for the use of credit cards. The merchants argue that this infringes on their First Amendment rights to freedom of speech.

Precedent and Legal Analysis

For reference and precedent, the W.D. Texas looks to the New York Court of Appeals to provide the starting point for its analysis. The case Expressions Hair Design v. Schneiderman answers whether”…a merchant complies with New York’s General Business Law §518 so long as the merchant posts the total dollars-and-cents price charged to credit card users?” Expressions Hair Design v. Schneiderman, 92 N.E.3d 803 (N.Y. 2018). The New York law is similar to Texas’s law because it is not a typical price-control regulation. The law tells a merchant nothing about the amount the merchant is allowed to collect from a cash or credit card-paying customer.

Rowell at 728. New York even amended the New York Business Law §518 taking effect on February 11, 2024. The title of the statute changed to “Credit card surcharge notice requirement” and now requires sellers to “clearly and conspicuously post the total price for using a credit card, inclusive of surcharge, provided however, any such surcharge may not exceed the amount of the surcharge charged to the business by the credit card company.”(Cf. NY CLS GEN BUS§518 [eff. until Feb. 11, 2024]; NY CLS GEN BUS §518 [eff. Feb. 11, 2024]).

Potential Changes and Future Implications

This is a necessary change and gives merchants and customers the ability to decide how they want to handle credit card transaction processing fees. In Rowell, the W.D. Texas correctly affirms that the New York Anti-Surcharge regulation is the same as the Texas law. Under the First Amendment, for any action to survive as a constitutionally allowable governmental speech regulation, the State is required to establish that the law directly advances a substantial governmental interest and is not more extensive than necessary to serve that interest. Central Hudson Gas & Elec. Corp. v. Public Serv.Comm’n of N.Y., 447 U.S. at 566 (1980).

Here, the W.D. Texas concludes that the government does not directly advance a substantial governmental interest and that the Anti-Surcharge Act violated the merchant’s commercial free-speech rights under the First Amendment of the United States Constitution. Rowell at 731. Additionally, the W.D. Texas finds that the regulation is a legitimate restriction against deceptive and misleading commercial speech. Rowell at 9.

Ultimately, the W.D. Texas rules in favor of the merchants and says that there is no deceptive or misleading speech. It is not a stretch to believe that Texas will eventually amend Tex. Bus. and Com. Code § 604A.0021 requires a notice instead of the current language since they have followed New York’s lead on the meaning of this statute. It may be possible for merchants to now adjust their prices so that they no longer have to take on these credit card transaction fees. On that same note, Consumers should look for this surcharge on their tab and dispute it with businesses if the charge is not communicated before the payment.

Consult a Business Lawyer about Transaction Processing Fees

Businesses should consult with attorneys on how to properly advertise their prices and services and ensure the business is compliant with the law, so that businesses may focus on running their business, rather than stressing over the burden of credit card transaction fees.

Written by Nick Karolys, Law Clerk at KM&D Law