Law Offices of David A. Tilem

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Retailers Beware, Charging Extra Fees to Consumers for Using Credit Cards Is Illegal

This article is split into three parts. The first part will explain California law as it applies to surcharges for the use of credit cards. In the second part (found here), I will explore the loopholes embedded into the law and explain why this law is actually bad for consumers and retailers alike. In the final part, I will explain why this law is poised to be stricken as unconstitutional.

                                                  Part I - How it works

In California, it is illegal for a retailer to charge extra fees to customers who use credit cards.

The actual language of the law can be found in California Civil Code section 1748.1(a). The first sentence states that,

"(a) No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means."

On its face, this law appears to protect consumers from being reeled in with low prices only to be "hit" with a surcharge for using their credit card. Whether it does what it is supposed to do will be explored in Part II.

It's important to note that this law applies to typical every day shopping related purchases and prevents sellers from surcharging buyers with credit card fees. Note: I am avoiding the legalese pertaining to what a retailer is, what a consumer is, and what a transaction is, because this article is not targeted at the legal community.

What happens if you are a local mom and pop that charges your customers an additional 50 cents for using their credit card? The penalty is set forth in part (b):

"(b) Any retailer who willfully violates this section by imposing a surcharge on a cardholder who elects to use a credit card and who fails to pay that amount to the cardholder within 30 days of a written demand by the cardholder to the retailer by certified mail, shall be liable to the cardholder for three times the amount at which actual damages are assessed. The cardholder shall also be entitled to recover reasonable attorney's fees and costs incurred in the action."

The penalty is pretty harsh. If a customer is charged the extra 50 cents for using a credit card, all they have to do is write a demand letter requesting a refund of the surcharge and have it sent via certified mail.

The law will entitle them to be paid back three times as much as they were charged in addition to reimbursement of reasonable attorney's fees and costs.

This could mean the retailer above would have to pay back 50 cents + a $1.00 penalty + costs of mailing the letter + any attorneys' fees should the buyer seek one!

Practically speaking, the concern here for a retailer is that an attorney may bring a class action lawsuit knowing that attorneys' fees will be approved. If you are a retailer, you should avoid charging extra fees to consumers and instead use one of the loopholes set forth in Part II of this article.

Tune into the next part of this article for an explanation of the loopholes to getting around this "consumer protection" law and for an explanation of why this particular law actually hurts consumers.

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