Colorado Opens the Door to Surcharging: Five Key Takeaways

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On Friday, July 9, 2021, Colorado’s governor signed a new law changing Colorado’s status from one of the few states that bans surcharging to one that expressly permits it. Colorado Revised Statute § 5-2-212—which takes effect on July 1, 2022—will allow merchants to add fees to sale and lease transactions when the consumer uses a credit or charge card.

Despite opening a previously closed door, the new law does not create a free-for-all for surcharging. Most state law is silent with respect to surcharging so that in the absence of a specific prohibition, surcharging is permissible by default. In those cases, card brand rules dictate how surcharging programs should be implemented. Not so in Colorado: the new act has its own very specific rules about surcharging. We break down the new law below.

Lesson #1: Every charge is a surcharge.

Unlike the card brand rules, which differentiate between convenience fees, service fees, and surcharges, in Colorado, every charge is a surcharge. The new act defines a surcharge “as any additional amount imposed at the time of the sale or lease transaction…for the privilege of using a credit or charge card.” Thus, every charge added to a payment card in Colorado is subject to the new law.

Lesson #2: Surcharges are capped.

The new Colorado law limits surcharges to either 2% of the transaction value or the actual amount the merchant pays to the payment processor. The merchant may choose which structure to use and is not limited to the lesser of the two amounts. In contrast, the Visa and Mastercard rules cap surcharging at the lesser of the merchant discount rate or 4%. The intersection of card brand rules and Colorado law could create an interesting situation where, for example, the merchant discount rate is 5%. While such a 5% surcharge would be permissible under Colorado law as the actual merchant discount fee, card brand rules would still cap the fee at 4%.

Lesson #3: Debit cards cannot be surcharged.

Colorado’s new law prohibits the addition of any fees to purchases made via debit card, gift card, cash, or check. Because all charges are surcharges in Colorado, this prong of the law is more restrictive than card brand rules. For example, Visa permits convenience fees to be assessed on debit cards. In Colorado, any fee added to a debit card transaction is illegal.

Lesson #4: Colorado requires specific signage and receipt disclosures.

All merchants, whether brick and mortar or e-commerce, must disclose the surcharge using specific language prescribed by Colorado’s new statute. The surcharge must also be broken out as a line item on the receipt, and only one surcharge per transaction may be assessed.

Lesson #5: Violators could be subject to criminal prosecution.

Colorado’s surcharging statute is part of its Consumer Credit Code, and any seller or lessor who violates the surcharging provision is subject to liability as a creditor. While the Consumer Credit Code contains a multitude of remedies and liabilities, the harshest penalty is the potential for creditors who willfully violate the law to be prosecuted for a criminal misdemeanor.

Colorado’s new law is a boon for merchants who wish to pass along to consumers the cost of accepting credit cards. But, its limitations on how surcharging programs may be implemented require proceeding with caution and watching carefully for conflicts between the state’s law and the card brand rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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