How NY is Cracking Down on Those Annoying Credit Card Fees With New Law

As consumers continue to struggle with high costs, more and more people are using credit cards for everyday purchases, resulting in increased fees for businesses. To offset the additional fee burden, many businesses add credit card surcharges to credit card purchases, but not all businesses are clear about what those fees are or how they will impact the final bill at the register. This sticker shock has led to frustration and surprise at the lack of transparency, especially when those fees haven't been considered in consumers' initial budgets.

To encourage proper communication between businesses and consumers, the state of New York has enacted a law forcing businesses to communicate credit card surcharge fees clearly.

What are credit card processing fees?

Interchange fees, also known as swipe fees, are fees charged by the bank to the merchant every time a customer swipes a credit card to purchase goods and services.

On average, the fees range from 2-2.5% of each cost transaction.

These fees allow the merchant to get paid when the cards are used. Credit card companies, however, don't typically receive their payments until the cardholder pays their bill.

While many merchants pay these fees upfront, they could eat into their profits in the long run. Businesses may raise their prices to cover the cost of the fees or charge the fee to the customer separately.

While it seems that the processing fees would be covered by the interest charged to the cardholder, credit card companies say that those fees aren't enough to cover the overall costs. To offset their costs, merchants may increase pricing or add an additional fee, usually a percentage of the total, when consumers pay with credit cards.

How NY is adding transparency

NY Gov. Kathy Hochul officially signed into law a bill requiring businesses to clearly state the exact cost of purchasing items with a credit card. Merchants will no longer be allowed to only display a sign stating that a fee is charged for credit card usage. Instead, an item could list two prices — one for cash or debit payments and the other for credit card payments — or only list the price that includes the credit card fee.  

Hochul's goal is clear communication between businesses and consumers. "New Yorkers should never have to deal with hidden credit card costs, and this law will ensure individuals can trust that their purchases will not result in surprise surcharges," said Hochul. The move may assist consumers in budgeting more effectively before heading out to the store.

The law, which went into effect on Sunday, applies only to credit cards. Debit card purchases are not included and should not result in fees.

How to avoid credit card processing fees

As a consumer, the main alternative to hefty credit card surcharges is to opt for cash or debit card payments. In some cases, businesses will reward customers who use cash by giving them a small discount or not charging the swipe fee — which is why gas stations frequently advertise lower prices for cash fuel purchases than credit card fuel purchases. 

Many merchants also allow consumers through the Automated Clearing House network (ACH). An ACH payment is an electronic funds transfer between banks or credit unions. Direct deposit payroll is an example of an ACH payment. 

Amazon, Walmart, QVC, eBay, and many smaller retailers accept ACH payments.

On the business side, merchants can negotiate lower fees with credit card companies and pass those savings on to customers.

There are also additional verification details the merchant can enter to lower fees. For example, merchants can enter the address and billing zip code of the consumer's corresponding card, showing the credit card company that increased security measures are being taken on behalf of the consumer.

Bottom line

While it can be frustrating for a consumer to pay additional credit card processing fees, this law helps to provide transparency by requiring businesses to be upfront about swipe fees.

Consumers can then budget with fees in mind to avoid sticker shock at the register or pay with cash, debit, or ACH to avoid credit card surcharges entirely.