In July 2021, Colorado passed a new law that jettisoned its ban on credit card surcharges. Starting from July this year, merchants will be able to add fees to lease and sale transactions if the customer uses a credit or charge card.
Contrary to popular opinion, though, the new law doesn’t create a free-for-all when it comes to surcharging. In most states, surcharging is permissible by default due to a lack of specific prohibitions. In Colorado, however, surcharging involves some very particular rules. Here are the five main things you need to know about the new surcharging law.
1. Every Charge Is a Surcharge
The new law defines a surcharge as “any added amount imposed at the time of the transaction for the privilege of using a charge or credit card.” In other words, every charge that’s added to a payment card in Colorado is considered a surcharge. This is a big difference from the card brand rules, which tend to differentiate between convenience fees.
2. Debit Cards Can’t Be Surcharged
Purchases made via debit card, gift card, check, or cash can’t have any fees added to them. Since Colorado sees all charges as surcharges, this part of the law is more limiting than card brand rules. For instance, Visa permits assessing convenience fees on debit cards.
3. Surcharging Is Capped
The new law limits surcharging to 2% of the transaction value or the amount the merchant pays to their payment processor. It’s up to the merchant to decide which of these two structures to use. By comparison, Visa and Mastercard still cap surcharging at the lesser of 4% or the merchant discount rate.
This intersection of Colorado law and card brand rules could lead to some interesting situations. For example, if the merchant discount rate is 5%, Colorado law would allow it as the actual merchant discount fee, whereas card brands would still cap the fee at 4%.
4. There Are Specific Disclosures
Under Colorado’s new statute, merchants must disclose the surcharge using specific language. This is true for all merchants, whether e-commerce or brick-and-mortar. The merchant must also break out the surcharge as a separate line item on the receipt. Finally, it’s only possible to assess one surcharge per transaction.
5. Violators Could Face Prosecution
The new surcharging statute is part of Colorado’s Consumer Credit Code. That means that any lessor or seller who violates the surcharging provision could face liability as a creditor. The harshest potential penalty for those who willfully violate this law is criminal prosecution.
All in all, Colorado’s new law is a big help for merchants who want to pass along the cost of accepting credit cards to their customers. However, the law’s limitations on surcharging require merchants to proceed with caution when it comes to implementing surcharging programs.