How the New York Supplier Surcharge Ruling Affects the Credit Team

Scott Blakeley, Esq.

New York State Court of Appeals Ruling Requires Fuller Disclosure for Supplier Surcharging: What it Means to the Credit Team and a Nationwide Surcharge Rollout

By: Scott Blakeley, Esq

While The New York State Court of Appeals has ruled on the topic of surcharges, the matter has been sent to the Second Circuit Court of Appeals to determine the law’s validity. Pending the court’s opinion, credit practitioners should be aware of the potential impacts to the billing process. CRF will report on the Second Circuit Court of Appeals as their opinion is rendered.

On October 23, 2018, the New York State Court of Appeals (Appeals Court) delivered the response to a certified question handed down from the U.S. Federal Court of Appeals for the Second Circuit: What must the merchant (supplier) disclose to customers when they surcharge in order to comply with New York’s no-surcharge law – the percentage cost of acceptance, or something more, by actually calculating the dollar amount of the surcharge?1

According to the majority opinion from the Appeals Court, a supplier must disclose the total dollar amount of the surcharge, not merely the surcharge percentage (say 2.25%) to comply with New York’s no-surcharge law. What does the Appeals Court’s ruling mean for suppliers’ surcharge disclosure to customers, especially in contrast with the Visa and MasterCard surcharge rules?

History of litigation challenges to NY no surcharge laws
History of litigation challenges to NY no surcharge laws

Enacted in 1984, New York’s no-surcharge law prohibits sellers from imposing a surcharge on customers who use credit cards in lieu of paying by check, cash or other payment forms. In 2013, five merchants, led by Expressions Hair Design, sued New York in federal court arguing to restrict the enforcement of New York’s no-surcharge law as a violation of First Amendment rights and being unconstitutionally vague. Merchants’ claim to the violation of First Amendment rights stemmed from the method used to display price differentials to customers.

Making its way through the Southern District of New York to the Second Circuit Court of Appeals, it reached the U.S. Supreme Court in 2017. The Supreme Court vacated the Second Circuit’s ruling that New York’s no-surcharge law does regulate speech through the “communication of prices rather than the prices themselves.”2

The Second Circuit tasked the New York State Court of Appeals to clarify New York’s surcharging disclosure requirement to customers.

Visa and MasterCard Surcharge Rule Disclosures

In 2013, Visa and MasterCard amended their network rules to allow for surcharging. To comply with the network rule surcharges, suppliers must disclose to customers their surcharge, which is the interchange fee, and cannot bury the surcharge through a price increase. The customer surcharge disclosure, which can be a line item on an invoice, does not require the supplier to do the math and calculate the dollar amount of the surcharge on the invoice. For New York, the Appeals Court’s ruling requires the supplier to actually calculate the dollar amount of the surcharge.

New York’s Surcharge Disclosure Ruling

The Appeals Court’s decision provides further analysis to the recent surcharge decisions in California, Florida, and Texas. Retailer litigation challenges in each state has defeated its no-surcharge laws. The Appeals Court found the no-surcharge law to be a disclosure law and clarifies the disclosure detail suppliers must make to comply with New York’s no-surcharge law.

The Court Mandates Specific Disclosure of Surcharge Amount

A majority of the Appeals Court found New York’s no-surcharge law is violated when a supplier does not disclose to customers the full dollar cost of the surcharge. Merely disclosing the interchange fee as the surcharge is not sufficient under New York’s law, although sufficient under the card network rule, as it may be confusing for customers to undertake an arithmetical calculation to evaluate total cost.

The Second Circuit Court of Appeals will now determine whether New York’s no-surcharge law is a valid restriction on commercial speech and either accept or reject the Court of Appeal’s interpretation to issue a final ruling.

What the Court’s Ruling Means to the Supplier Surcharge Rollout

The most expedient way for a supplier to comply with the Appeals Court’s ruling is to calculate the surcharge amount by disclosing both the interchange percentage amount (say 2.25%) and multiplying that by the invoice amount. In other words, the supplier does the mathematical calculation. Given a supplier’s nationwide surcharge rollout, a best practice may be to make this calculation and disclosure no matter where the customer is located.

Scott Blakeley is a principal at Blakeley LLP, where he practices creditors’ rights and bankruptcy. His email:




1- Expressions Hair Design, v. Eric T. Schneiderman, &c.100.U.S.1,2[2018].
2- Expressions Hair Design v Schneiderman, 877 F3d 99, 101 [2d Cir 2017].

Missed the Webinar on Credit Card Acceptance? We Have Your Playback Recording Here

Credit card acceptance and surcharging continue to be two of the hottest topics among credit professionals. With more and more companies opting to pay by credit card, the surcharges can definitely eat into your company’s bottom line. At our recent webinar, Michael Williams from UTA and Ronald Clifford, Esq., addressed some of the most frequently asked questions they hear regarding credit card acceptance and surcharging from a practical and legal standpoint. Additionally, the question-and-answer session at the end of the webinar from fellow credit practitioners is worth your time to listen to.

The playback recording of the webinar is available free to CMA members, while non-members can get the recording for $79. Click here to request a recording of the webinar.

The Advantages (and Disadvantages) of Accepting Credit Card Payments, by Scott Blakeley, Esq.

Customers in the B2B space are increasingly using credit cards to pay supplier invoices. The upside for the cardholder and paying customer is the 30 extra days to pay the cardholder statement that includes the supplier’s invoice. Cards also reduce paperwork and allow the customer to eliminate the time and cost of processing A/P checks. The upside for suppliers is that payment by credit card means near immediate remittance, reduced credit approval and collection activities, reduced credit and bankruptcy risk, and new sales channels (attracting customers who otherwise may not qualify for terms). Further, by accepting cards only when the order is placed, the supplier also enjoys increased cash flow, improved DSO and reduced A/R.

Still, there are complications involved with accepting credit cards in the B2B space. One area where suppliers may have particular legal questions surrounding their policy concerning credit cards is in collections, particularly in suppliers using credit cards as a collection strategy on past-due accounts.

As a speaker at the upcoming CreditScape Fall Summit in Las Vegas, I will address the use of credit cards as a supplier collection strategy in scenarios where the customer has failed to pay. I will cover the rules of the supplier accepting credit card payments on past due invoices from a customer who cannot pay. The discussion will also include the possibility of a surcharge rollout, and the legal issues associated with surcharging the credit card using customer, including how handle the 2-4% interchange fee that credit card companies charge their customers.

Join me as we cover this topic in much more detail at the upcoming CreditScape Fall Summit, September 17-18 at the Tropicana in Las Vegas. For more information about the conference, visit I hope to see you there.
Scott Blakeley, Esq., is founder of Blakeley LLP, where he advises companies around the United States and Canada regarding creditors’ rights, commercial law, e-commerce and bankruptcy law. He will be speaking at the upcoming CreditScape Fall Summit, and can be reached at

The Illusion of a Good Deal

There’s no question that a lot people have a hard time wading through the confusing and overwhelming maze of data present on statements that they receive from their credit card processors. There’s a popular mental image that processors are merely robbing their customers, hitting them with a never-ending string of charges like convenience fees, access fees, risk fees, assessment fees, downgrades and the heavy-handed interchange.

“They do take advantage,” said Robert Day, assistant vice president, Commercial Interchange, Third Fifth Processing Solutions at the recent CMA webinar, “The Illusion of a Good Deal.” “Interchange is where your focus needs to be. The issuing side of the house is where the money is made…they’re the ones that are driving the interchange.”

Day warned that interchange, the fee collected by the acquirer from the merchant for every Visa and MasterCard transaction, can represent as much as 92% of a transaction’s costs. On commercial cards, the rate of interchange can be affected by the amount of detail a business can collect on the purchaser, such as zip code, location and tax ID as well as line item detail of the purchase, to lower the risk of the transaction being disputed. With lower risk comes a lower interchange rate, which can save anywhere from tens to hundreds of dollars on large ticket sales.

“Really, the key is getting the correct information and putting the information in correctly,” said Day.

But even if a merchant does this, it could be moot.

Beyond the tangled mesh of fees upon fees, the problem for most businesses is that the account with their processor or gateway does not match their business’ needs or practices. Having an account that is set up incorrectly, which typically happens because of lack of experience or knowledge from the merchant or an Independent Sales Organization (ISO), like a local bank that re-sells the credit card processing, translates into wasted money and time. ISOs outnumber processors over 100-to-1 and are very common partners for business accounts, but their limited knowledge could mean that it would be nearly impossible for businesses to achieve lower interchange rates.

Day also warned that processors will simply try to take advantage of businesses. A common practice is that a processor will offer an attractive base rate, which will appear boldly on page one of a merchant’s statement, if the merchant will agree that the processor doesn’t have to disclose the rate they charge for downgrades. In this type of agreement, the processor will deliberately leave out the column for transaction volume on the statement so that the percentage charged on downgrades can’t be figured out. Day explained that if credit professionals see that this one column is absent, it might be time to take another look at the relationship with that processor.

“It doesn’t matter what discount rate is shown on page one,” said Day. “Page one is there to humor you. Throw it away unless it aligns itself with page two. Otherwise, it just doesn’t matter.”