State Bans Credit Card ‘Surcharge’

Question: Would you please explain the legality of a retailer charging a surcharge for using a credit card instead of paying with cash or a check?

Last week, I went into a stereo store to buy a car stereo. The advertised price was $199, but there was a sign above the cash register that there was a 2% surcharge for using a credit card.

I asked the salesman why this was not mentioned in their ads, and he said they were under no obligation to state that they surcharge credit cards.

I walked out because I felt like they were trying to shaft me. Is it legal?--H.O.

Answer: You’ve asked a question that I’ve often wondered about myself. And you’ll be glad to hear that if you had purchased the stereo and paid the surcharge, you might have been able to “shaft” the store in small claims court.

California and federal law apply. The federal Truth in Lending Act is fairly confusing, so let’s stick with the state law, which is very specific, relatively easy to understand and not preempted by the federal one. Section 1748.1 of the Civil Code seemingly outlaws credit card surcharges.

It says: “No retailer in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check or similar means.”

I said “seemingly” because there is a fairly big loophole. In the very next sentence, the law allows “discounts” for the purpose of inducing payment by cash or check as long as the discount is offered to all prospective buyers.

It may be hard to tell the difference between a cash discount and a credit card surcharge. Presumably the cash price you see posted at gas stations is a discount, because it is clearly labeled and is available to all. Many retailers who are using surcharges may be able to comply with the statute by simply revising their notices and advertisements.

But in your situation, the store itself called the fee a credit card surcharge and imposed it on top of the advertised price.

It sounds as if a customer of that stereo store could use another part of the state law to get a rebate of the surcharged amount, or even more.

It works like this. Send a written demand by certified mail to the retailer asking for the surcharge to be returned. (Cite the Civil Code section.) If the retailer does not pay within 30 days, the law provides that a customer may sue the retailer (even in small claims court) and collect three times the amount of actual damages as well as reasonable attorney’s fees and costs. This only applies to retailers who “willfully” violate the surcharge provision.