When you buy something with a credit card, don’t be surprised if you now have to pay a convenience fee. The Texas law was overturned.
For this Black Friday, I have terrible news for anyone who pays for anything with a credit card.
Until now, if a Texas merchant tried to charge you a surcharge to cover the cost of the credit card charge, you could accurately tell the merchant it’s illegal under Texas law. (Except for governments, which are excluded.)
For the first time in many years, surcharges are suddenly allowed on Texas credit card sales. Merchants can penalize you, passing on their “swipe fee” costs to you.
A federal judge in Austin ruled this summer that the state law was unconstitutional. It was tossed.
Few seem to know the longtime ban was lifted. Some merchants have been alerted by their payment companies. And when some of these merchants began in recent weeks charging “convenience fees” or “service fees” or whatever they call it, Texas consumers became confused.
Some have written The Watchdog to get the scoop. Because I haven’t written about this until now, there’s precious little information on Google to answer the question correctly.
If you do a Google search — “are surcharges illegal in Texas?” — the wrong answer comes up.
I must say thanks to Brian Bickel of Unified Commerce Solutions who saw to it that The Watchdog — and you — now have the latest information.
The Texas attorney general’s office released no information on the subject, except to tell me that after the state lost the court case, it has no plans to appeal.
FAQ’s on credit card surcharges
Some important facts: If you pay with a debit card, prepaid card or check, there can be no surcharges because that money is extracted directly from your account.
A merchant is now allowed to show you at least two prices: what it costs with a credit card, and what it costs with a cash or debit card payment.
The surcharge must reflect what the actual swipe fee is. The maximum allowed is 4 percent. If a merchant charges more, file a complaint with the Texas AG’s office.
Not every merchant will pass these fees on to customers. So you can shop around for a merchant who doesn’t — and get a lower price.
A merchant who lures you in with a low cash price through advertising and then upsells you with a surcharge might have a problem.
Merchants must clearly disclose the surcharge before the sale. (I’ll bet many won’t, and that’s a future concern. At a restaurant, for instance, you’ll find a surcharge on the bill, but I doubt a waiter will mention it.)
If an out-of-state merchant tries to charge a surcharge, you can check if their home state allows such a charge. If not, it’s illegal and you can contest it in their state.
Surcharging is legal only on purchases where both the seller and the purchaser are in states that allow for the practice.
So if you’re buying something from a company in one of those six states, they can’t surcharge you, even if it’s allowed in Texas.
Background on Texas surcharges
If you’re in a hurry to go Black Friday shopping, you can stop here. But if you want background on how this came about, let’s go on.
Believe it or not, the Texas case went all the way to the U.S. Supreme Court. The justices tossed it back down to lower courts. In Austin, U.S. District Judge Lee Yeakel ruled the law unconstitutional in August.
This began in the 1980s when Texas and other states passed laws pushed by credit card companies to make it illegal for merchants to charge more to credit card payers. Texas added debit cards to the mix.
It appeared to help consumers, but actually credit card companies didn’t want us to think about their swipe fees. They figured if we knew, we’d pay cash to avoid them, and they wouldn’t get the money.
Texas banned surcharges but made it legal to offer cash discounts (favored by some gas stations and, famously, Spec’s Wine, Spirits and Finer Foods).
Enforcement for violators was pitiful and sometimes nonexistent. A state agency would send out warning letters. But then the Legislature transferred enforcement to the attorney general’s office and added a $500 fine to give it some teeth.
I can’t find anyone who got fined. Most likely, this is because the case got tangled up in the courts.
Speaking of the courts, the winning merchants in the federal lawsuit that overturned the Texas law used a free-speech argument to win. They argued that their First Amendment right was denied because they weren’t allowed to tell customers about the hidden swipe fees.
Now they can tell you, “This costs xx with a credit card, but xx with cash or debit.” Before, they couldn’t.
Free speech? Well, it worked.
One of the lawyers on the winning side said we shouldn’t be fooled that this hurts consumers. He argues that this helps us because the old law helped credit card companies more than customers because it hid the fees.
Deepak Gupta, the winning Washington, D.C. lawyer, told me, “Merchants will be free to tell us how much it costs to use a credit card. They’d have to fully disclose what they’re doing.”
Final note: In the coming months, watch as many merchants begin to exercise their free speech rights — and possibly charge you more.