Landmark Ruling Pushes U.S. Toward Comprehensive Surcharging

10. January 2018.
Credit card surcharging is a step closer to universal adoption in the United States.

Businesses are getting much-needed relief from costly card fees, with the U.S. Ninth Circuit Court of Appeals in San Francisco striking down a California law that banned the practice of passing along charges to customers.

In the first state-level interpretation of last year’s U.S. Supreme Court ruling on the issue, the Ninth Circuit agreed credit card surcharges should be allowed as protected speech under the First Amendment.

With bans being ruled unconstitutional, it is “much more likely we’re going to see surcharging in all 50 states,” CardX CEO Jonathan Razi told

Until the favorable court rulings, businesses had few tools to manage these credit card fees, which are among the fastest-growing costs of doing business.

Many were forced to raise prices across the board to make up for them, leaving cash and debit card payers to subsidize users of credit cards (to the tune of more than $1,100 per year, according to the Federal Reserve Bank of Boston).

The universal adoption of surcharging likely will lead businesses to post a single price and then charge a fee when customers choose credit cards—so that the customers accruing points and miles will bear their cost.

This allows consumers to comparison shop between credit and lower-cost forms of payment, such as debit and cash, effectively bringing down costs to all parties.

For far too long, credit card issuers have been insulated from price competition in the U.S. due to the unfair bans on surcharging and the lack of transparency that comes along with them.

What’s next

The Ninth Circuit’s decision opens the door for other, similarly-positioned merchants operating in California to pass on their costs.

And businesses and consumers will be watching intently as similar cases test the few remaining states holding out against surcharging.

Significant changes will follow universal adoption of the practice.

Large merchants, especially, are opting not to pass on credit card fees simply because the holdout states would disrupt their nationwide pricing strategies.

Companies such as Walgreens, Spirit Airlines and Kroger, which filed briefs in the Supreme Court case Expressions Hair Design v Schneiderman, have indicated they would choose to pass on the fees when they are able to do so in all 50 states.

This processing model follows directly from the rules issued by Visa and MasterCard.

Today, thousands of small- and medium-sized businesses are surcharging and, once the largest national retailers join them, it will become the new industry norm.

When that happens, the U.S. payment acceptance landscape will look more like Australia’s, where 42% of all merchants (and 60% of large merchants) pass on credit card fees, motivating customers to choose lower-cost options—which will drive down interchange for the market as a whole.

Moreover, businesses that currently elect not to accept cards because of cost-prohibitive fees will be able to do so for the first time.

Credit card surcharging means a fairer payments framework, which benefits everyone.

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