In recent years, credit card surcharging the practice by which merchants pass on the transaction fee for accepting a credit card to the cardholder has become increasingly popular. This trend is likely to continue, as a survey from consultancy CMSPI found that cost reduction is the top payments priority for 60% of businesses. In tandem with expanding market acceptance of surcharging, more states have explored and implemented surcharging laws,
sometimes on the premise that this would unify surcharging and serve to protect consumers. More than a dozen bills related to surcharging and consumer fees generally have been introduced to state legislatures in 2025 alone. As reported, several new laws ask to prohibit “drip pricing“ or “junk fees.“ The unclear meaning of these has caused confusion for merchants and their acquirers, and we have gotten several inquiries about whether drip pricing laws impact credit card surcharging. Here, part of the dialogue we have with merchants as well as our ISO and ISV partners is shared.
What Are Drip Pricing Laws?
Though the specific language of the statute will vary by state, the concept of drip pricing is described generally as “advertising a price that is less than the actual price that a consumer will have to pay for a good or service.” That is California’s “Honest Pricing Law,” also referred to as SB 478. This law came into effect on July 1, 2024. Drip pricing laws bar merchants from advertising a price that does not include all “mandatory fees or charges.” When such fees or charges are added later in the checkout flow, they are sometimes called junk fees. Drip pricing laws have been enacted to avoid merchants’ practices of using “an artificially low headline price to attract a customer” and later disclosing “additional unavoidable charges” during the buying process, as directed by guidance from the California Office of the Attorney General (OAG).
Where Are Drip Pricing Laws Enacted?
In addition to the California law, Minnesota also passed a drip pricing law in 2024. The Minnesota law will go into effect on January 1, 2025. Other states are likely to consider drip pricing legislation in 2025 and beyond. In 2023, the FTC under Chair Lina Khan drafted a rule that would ban junk fees, but whether the FTC moves forward with this rule after the November 2024 presidential election is in question. With that said, the absence of federal regulation may only embolden certain states to fill a perceived void by introducing legislation of their own.
What's An Example Of An Additional Fee That Would Be Prohibited? Are Any Types Of Additional Fees Allowed?
Drip pricing laws require the merchant to include all mandatory fees or charges in the advertised or displayed price. However, the California OAG clarifies that optional fees need not be included in the advertised price, such as “fees that are contingent on certain later conduct by a consumer” or fees for “optional services or features.” For instance, an example of the former would be a resort fee charged to all guests at a hotel, regardless of the room they stay in or services they use on the property. In states with drip pricing laws, this type of fee is considered a mandatory fee and therefore must be included in the advertised price. In contrast, a fee for expedited shipping, which is only charged to customers who select that option, could be added later in the checkout flow based on the choice the customer makes.
Do These Laws Affect Compliant Credit Card Surcharging?
Laws like SB 478 almost certainly do not prohibit compliant credit card surcharging programs.
This is because drip pricing laws only apply to mandatory fees. Consequently, such laws would only prohibit credit card surcharging if the surcharge is a mandatory fee that has to be paid by every customer, irrespective of which mode of payment is selected. As long as customers are allowed to choose to pay with a credit card or another type of payment that does not include a surcharge, such as ACH or debit card, a credit card surcharge is always optional. Because determining an appropriate non-compliant credit card surcharge hinges on the type of payment the customer selects, it is an “optional service or feature“ that is conditional on certain later action by the consumer, which the California OAG notes is readily differentiated from the “mandatory fees“ covered by SB 478.
What Are Some Essential Things To Look For In A Payment Technology Partner?
In states where drip pricing is outlawed, it is important to ensure you are delivering a fully compliant credit card surcharging solution, such as transparent disclosure of the surcharge and the capability to switch to a debit card to avoid paying the extra fee. Furthermore, given the constantly evolving state law landscape, it is paramount to select a payment technology partner with a track record of staying at the leading edge of regulatory change. CardX by Stax performs legislative monitoring in all 50 states and engages with lawmakers where necessary in order to keep our high risk merchants and partners on the right side of new requirements. We are ready to share this expertise in conversation with you and your merchants whenever we can be helpful.
Key Considerations When Choosing a Payment Technology Partner
The maze of surcharging and drip pricing laws is pretty intricate. Look for the following when searching for a payment technology partner:
- Regulatory Awareness: Choose a partner that tracks state and federal legislation and stays up to date with changes.
- Transparent Solutions: A compliance surcharging program shall clearly publish fees available, offer an option to consumer choice, and facilitate easy connection to existing forms of payment.
- Proactive Support: The proactive Support Payment partner ought not only present its users with the proper tools toward.
The Bigger Picture: Regulatory Trends in the U.S. and Europe
There is also the case of similar trends observed in Europe, as well as the rising focus on junk fees and price transparency in the United States. Credit card surcharges are heavily regulated in the EU PSD2, which mandates a requirement for disclosure of merchant fees. This will then pose an expectation for businesses, requiring them to abide by the both regional and international standards so as to have globally competitive markets. Equipped with appropriate knowledge, together with appropriate partners, the merchant is likely to maintain better cost efficiency combined with compliance with better customer relations.
To Sum Up
This evolving landscape of credit card surcharging and drip pricing laws is a call for transparency in pricing practices, which is becoming increasingly necessary for businesses as states like California and Minnesota introduce legislation to do away with junk fees and hidden costs. Businesses need to adapt to the change while being compliant enough not to let customer trust falter. In order for merchants to avoid being on the wrong side of these laws, knowledge of mandatory vs. optional is essential. Clearly, though, while permitted credit card surcharges can continue to be lawful, disclosure to a customer and providing them with choices are fundamental elements. In the future, more stringent pricing rules are coming into effect across both the U.S. and the international level, as seen in the European regulations through PSD2. As such, to be ahead of the curve on that side, merchants should form alliances with innovative payment technology firms and continue to stay updated on legislative regulations.In the long run, transparency not only acts as a guarantee for compliance but becomes a surefire way to gain customer loyalty for honest and fair price systems.
Faqs
What are drip pricing laws?
Drip pricing laws require the merchant to charge all mandatory fees in the advertisement price so as not to add on any hidden or junk fees at check out.
Does drip pricing legislation affect credit card surcharging?
No. Because credit card surcharges are ancillary fees whose imposition is based on the customer’s choice of how to pay, they are treated as optional and are exempted from mandatory fee laws.
Where have drip pricing laws been enacted currently?
California’s SB 478 became operative on July 1, 2024 and Minnesota’s starts January 1, 2025.
What is mandatory and what’s an optional fees?
- Mandatory Fees: It cannot be avoided; think like a resort fees
- Optional Fees: Tack onto customer preferences such as overnite shipping or even a credit card surcharge.
How can Merchants keep within compliance?
Merchants should disclose fees transparently, include all mandatory charges in advertised prices, and partner with payment technology providers that monitor regulatory changes.
What makes credit card surcharges compliant with these laws?
Credit card surcharges are compliant as long as they are disclosed transparently and customers have the option to avoid the fee by using a different payment method, such as debit cards or ACH.
How do these laws impact businesses in the U.S. compared to Europe?
In the U.S., states like California and Minnesota are introducing drip pricing laws, while in Europe, regulations like PSD2 mandate clear disclosure of merchant fees, creating similar trends for price transparency.
What should merchants look for in a payment technology partner?
A good payment partner should offer compliance-ready solutions, monitor regulatory changes, and provide transparent tools to help merchants stay within legal boundaries.
Why is transparency important in pricing practices?
Transparency builds customer trust, ensures compliance with laws, and helps businesses avoid penalties while fostering loyalty through honest pricing.
What are the long-term trends in pricing regulations?
Stricter pricing regulations are expected globally, with increasing emphasis on transparency and fairness. Merchants should prepare by adopting compliant practices and collaborating with innovative payment technology providers.