Q: I stopped at a new convenience store near my house on my way home the other night, and when I went to pay for my purchases I noticed they had a note taped over the debit/credit card machine that said I would be charged an extra 75 cents if I paid with a debit or credit card, unless the total purchase was $10 or more. Well, I had no choice since it’s the end of the month, so I used my credit card and paid the extra 75 cents, but I was steamed! Is this legal? 
-- Cody

A: Credit and debit cards are a convenient option for many consumers. However, they can be very expensive for merchants, who must pay the issuing bank a fee every time they swipe a card. These fees vary, based on the issuing bank and the type of card, but generally range from 1-3% of transaction amount, plus a per-transaction flat fee of 5-20 cents. For merchants with a small profit margin, these transaction fees can really be a drain on their bottom line. Some merchants try to pass these fees on to the customer by imposing a fee for using a credit or debit card. 

California Civil Code 1748.1 prohibits merchants adding surcharges or any additional fees when a customer pays for goods or services using a credit card. However, the law does allow merchants to offer “cash discounts” to encourage customers to pay with cash or check, rather than a credit card. Although the outcome is similar – customers paying with a card are charged more than those using cash – there is a fundamental difference between a credit surcharge and a cash discount. With a credit surcharge, the consumer is paying more than the marked price simply because they’re using a card for payment. This can lead to an unpleasant surprise at the register, when the bill is more than the customer would expect based on marked prices. With a cash discount, customers paying with a card pay the marked price, while customers using cash pay less than the marked price. Customers paying with a card are charged the expected amount based on marked prices, while cash customers get a welcome discount. 

Although credit card surcharges are illegal in California, there is no law limiting surcharges for debit card transactions. Last year, then-Governor Schwarzenegger vetoed SB 933, which would have prevented merchants from imposing surcharges when consumers use debit cards. However, the merchant agreements for both Visa (rule 6.3) and MasterCard (rule 5.11.2) prohibit the practice. 

Keep in mind that “convenience fees” for using credit or debit card are allowed for some merchants, under both state law and merchant agreements. These are generally available to public-sector merchants, like schools, utilities or the IRS. 

Until recently, merchants were legally prohibited from setting purchase minimums for credit card use. This was changed with a provision of 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act. The new law allows merchants to set a minimum purchase as high as $10, as long as it is applied to all cards, regardless of issuer. 

If you believe a merchant is in violation of State or Federal law or their merchant agreement, you can make a report to your credit card company, or to the California Attorney General’s office. 

Do you have a question for the County Law Librarian? Just email sacpress@saclaw.org. If your question is selected your answer will appear in next Thursday's column. Even if your question isn't selected, though, I will still respond within two weeks.

Coral Henning, Director
@coralh & @saclawlibrarian

www.saclaw.org