Surcharge for Credit Cards
I’ve spoken in the past about merchants, in accordance with the Consumer Credit Protection Act and (typically) their agreement with their acquiring bank, being restricted from implementing a surcharge for customers choosing to pay with credit cards.
It is a niggly issue that crops up periodically in discussions and one that is worth discussing in a bit greater detail. Let’s begin with a few definitions:
Surcharge: 1) An addition of extra charge on the agreed or stated price.
Incentive: 1) Something that motivates, rouses, or encourages. 2) A bonus or reward, often monetary.
Discount: 1) a reduction in price (noun)
With those three words in mind, you have the basis for understanding what is, inherently, a complicated issue. A merchant cannot implement a surcharge for credit acceptance. However, they can offer an incentive or discount (within certain limitations identified below) for the usage of cash or other non-credit tenders.
For example, a friend wanted to purchase a vehicle using their card to accumulate mileage points. When he presented his tender, he was advised of a 5% increase in price as a result of the tender. This surcharge is not allowed by the rules of the Truth in Lending Act and the rules the dealership agreed to when signing their contract to accept cards.
However, there is a growing number of retailers advertising the price of an item…and the decreased price of the item when cash is used. I remember experiencing this with fair regularity during the 1980s…and, interestingly, it would appear the process is again becoming popular.
I’ve mentioned the Consumer Credit Protection Act. For convenience, the pertinent sections are quoted below…In particular, Section 167 details the specifics regulations surrounding the offering of discounts.
167. Use of cash discounts
(a) With respect to credit card which may be used for extensions of credit in sales transactions in which the seller is a person other than the card issuer, the card issuer may not, by contract or otherwise, prohibit any such seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check, or similar means rather than use a credit card.
(b) With respect to any sales transaction, any discount from the regular price offered by the seller for the purpose of inducing payment by cash, checks, or other means not involving the use of an open-end credit plan or a credit card shall not constitute a finance charge as determined under section 106, if such discount is offered to all prospective buyers and its availability is disclosed clearly and conspicuously.
You may wonder what prompted this line of thought…a friend e-mailed me a photo he took at a gas station in Lakewood, Colorado this morning.
A discount that is “disclosed clearly and conspicuously”.
What’s your perspective? Agree? Disagree? Anything to add? Critiques? The comment form is below…
October 13, 2009