New Jersey Acts to Limit Credit Card Surcharges

New Jersey Gov. Phil Murphy on Aug. 18, 2023, signed into law a bill that limits the surcharges that merchants may charge their customers who choose to pay for goods or services using a credit card and requires disclosure of the surcharge (the Act).¹ The Act became effective immediately and appears to be the first effort in New Jersey to regulate credit card surcharge fees. Because the Act incorporates the penalty provisions of the New Jersey Consumer Fraud Act (CFA)² – which authorizes the attorney general to issue fines against violators and customers to seek redress in court through individual and class actions – it is essential that merchants act right away to bring their practices in line with the demands of the Act.

This Holland & Knight alert addresses some key questions and provides answers regarding the Act.

What Is a Surcharge, and Why Do Merchants Impose Them?

When merchants accommodate customers by allowing them to pay using a credit card, that service is not free. Merchants are typically required by contract to pay a small percentage of the cost to the credit card issuer and/or the network that manages the credit card processing system. Some merchants prefer not to absorb that cost and will instead increase the price charged to the customer. That increase in price is commonly called a surcharge. For example, if dinner at a restaurant costs $75, and the cost to the restaurant for taking a credit card is 3 percent or $2.25, then charging for the dinner and the surcharge could be $77.25 if the merchant merely passes on the credit card processing cost.

What Types of Transactions Are Covered by the Act?

Any sale, lease or rental occurring in New Jersey of goods of any kind (except motor fuel) or services of any kind to a buyer who is required by the seller, lessor or renter (Seller) to pay a surcharge for using a credit card for payment is covered by the Act. The Act defines a Seller as any "person who sells, leases, or rents goods or services to a customer," and "goods" as "any beverage, chattels, foodstuffs, products, or wares of any type or description … [except] 'motor fuel.'" Services are not defined in the Act or in the CFA. The Act's scope does not appear to be limited in any way by the buyer's intended use of the goods or services he or she is purchasing.

When Does a Sale Occur in New Jersey?

This is unclear; the Act does not address the circumstances under which a sale will be deemed to occur in New Jersey so as to be subject to the Act. Numerous questions arise in this regard. Is it enough that the customer resides in New Jersey? Must the Seller's business be located in New Jersey? What if a New Jersey Seller engages in sales transactions over the internet or by telephone with residents of a state other than New Jersey? What about Sellers that operate exclusively over the internet? For now, the most practical approach may be to assume the Act applies in every case in which the customer is a New Jersey resident.

Who Is Protected by the Act?

This seems to be any individual or entity who buys goods or services from a Seller for any purpose using a credit card. As initially introduced, the Act applied to any seller of goods or services that imposes a surcharge on a consumer (as defined in N.J.S.A. 56:11-1) who buys a good or service from the seller and elects to pay for it using a credit card. A "consumer" is defined in N.J.S.A. 56:11-1 to mean "a natural person." However, as the bill advanced through the legislative process, "consumer" was changed – without explanation – to "customer," a term that neither the Act nor the CFA defines. Based on this change, it seems possible to read the Act to apply even in situations in which the purchaser is an organization (not a natural person) or the goods or services being purchased are intended for a business (rather than a consumer) purpose.

What Obligations Does the Act Impose on Sellers?

The Act imposes three obligations on Sellers. Briefly, the Act 1) limits the amount of a surcharge Sellers may impose on customers paying with a credit card, 2) requires Sellers that impose such surcharges to make certain disclosures to customers and 3) imposes certain recordkeeping responsibilities upon Sellers. Details concerning these obligations are set forth below.

• The Act provides that surcharges may not exceed "the actual cost to the seller to process the credit card payment." Using the example provided above of a dinner at a restaurant costing $75 and a processing charge of 3 percent, a surcharge less than or equal to $2.25 would be acceptable, but a surcharge more than that amount would violate the Act.
• The Act requires Sellers who impose surcharges for credit card payments to disclose the amount of the surcharge to their customers before the customers incur any charge for goods or services, generally by posting a clear and conspicuous notice on a sign at the point of entry and point of sale. Restaurants must post the sign in their customer service area and on their menus. For transactions occurring through a website or electronic kiosk, the notice must appear before the transaction is processed on the checkout page of the website, mobile application or electronic kiosk. For telephone transactions, the notice must be given verbally before the transaction is processed.
• The Act requires Sellers to keep and make available to the New Jersey Division of Consumer Affairs (DCA) whatever "account books, papers, documents, and other records the DCA needs to determine whether the Seller is complying with the Act."

Does the Act Impose Penalties for Violations of Its Provisions?

Yes. The Act states that a violation of its provisions "is an unlawful practice" under the CFA, and the CFA imposes stiff penalties for such practices.

The CFA authorizes the attorney general, following an administrative hearing, to assess penalties of not more than $10,000 for a first offense, $20,000 for any subsequent offense, or $30,000 for any violation that is part of a scheme, plan or course of conduct directed at senior citizens or persons with disabilities in connection with sales or advertisements.³ In addition, in any action to enforce an order of the attorney general, the court may order the violator to restore to any person any money or property acquired from the person by any means declared to be unlawful under the CFA (double that amount if the person is 60 years or age or older).⁴ The CFA also authorizes the attorney general to bring civil actions against violators, and, if successful, to recover the reasonable costs of any such action, including investigative and legal costs, as may be filed with and approved by the court.⁵ Finally, the CFA gives persons who have suffered an ascertainable loss as a result of an unlawful practice a private right of action to sue the violator – including in a class action − and, if they are successful, requires the court to award damages equal to three times the amount of damages the person actually sustained, plus his or her reasonable attorney's fees, filing fees and court costs.⁶

Note that any "ascertainable loss" suffered by a customer by having paid a surcharge that was more than the Seller paid for the credit card processing service or by paying a surcharge without having been given prior disclosure of the surcharge is likely to be a relatively small amount, i.e., either the amount of the overcharge or the amount of the surcharge. As a result, the potential financial risk to Sellers resulting from individual violations of the Act seems manageable. But that is likely not to be the case for Sellers who have a large customer base and particularly those who operate over the internet or through mobile applications or electronic kiosks, where even a temporary disclosure failure can impact large numbers of customers by the time the failure is noticed and able to be resolved.

Class actions present the real danger in such circumstances, not necessarily because small monetary awards, trebled, to each member of the class can add up to a significant sum, but because the CFA requires the court, if violations resulting in ascertainable losses are established, to award reasonable attorney's fees to plaintiffs' class counsel, fees that are typically anything but reasonable. In addition, because of the public nature of Seller websites and mobile applications, they are readily viewable by members of the plaintiff's class action bar searching for a viable and easy-to-prove cause of action or by the attorney general (which, as indicated above, is authorized by the CFA to impose hefty fines on violators).

Finally, while one might think that Sellers should be able to protect themselves simply by making surcharge refunds to complaining customers, it is not clear that such action would be effective. Neither the Act nor the CFA includes a savings clause that would expressly relieve Sellers from liability in such a circumstance (although one could argue that any customer who has received such a refund has not suffered an ascertainable loss).

Conclusion

The potential consequences of violation the Act make it imperative that Sellers who impose surcharges on credit card purchases act quickly to ensure that they do so consistent with the requirements in the Act. If Sellers suspect that it will take some time to implement the changes needed to comply with the Act, they might wish to consider forgoing credit card surcharges until those changes are made.

Holland & Knight Partner Leonard Bernstein also contributed to this alert.

Notes

¹ The bill the governor signed can be found online.

² N.J.S.A. 56:8-1 et seq.

³ N.J.S.A. 56:8-13, -14.3.

⁴ N.J.S.A. 56:8-14.

⁵ N.J.S.A. 56:8-14.1.

⁶ N.J.S.A. 56:8-19.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.