KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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California Hidden Fee Law – credit card processing fees
January 31, 2025
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California Hidden Fee Law – credit card processing fees |***********************************
Ken
We are presented with higher processing fees by Intuit, and ACH (from .50 to $3).
And over a decade we have not charged our customers, but how can we charge customer for this processing fee? What do you suggest from your legal perspective? We are in California, and we are a client of K&K, too.
Thank you,
Alexandra
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Response
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Many states are enacting laws regarding credit card processing fees [not so much ACH payments]. Credit Card processing has become big business and, I suppose, like all businesses, the cost to the customer just keeps going up. A percentage charge with minimum processing fee isn’t uncommon. Businesses who accept credit cards do so because that method of payment is not only convenient but provides a way to receive payment quickly as opposed to waiting for “a check in the mail”; thus payment by credit card is the most popular method of payment in many if not most businesses. The problem is that credit card processing fees have increased and it’s easy to lose track of the processing cost.
If you conduct business embracing the RMR model you are invoicing your customers monthly. If the recurring charge is $40 it’s costing you $1.20 to process the card at 3%. Add that to the $3 to $6 bucks a month you pay to the monitoring center [more if there are other third party monitoring charges for alarm.com, Napco Starlink, etc]. Using the basic $3 monitoring charge, that means you pay .075 times the $40. Adding $1.20 increases that percentage to .105. The .30 may not seem like a lot until you figure out you have 1000 customers. Instead of paying $3000 a month for monitoring you are now paying $4.200 a month. On top of that the cost of mailing is now 73 cents [up from 68 cents].
These little nickel and dime increases add up. What can you do about them?
The Kirschenbaum Contracts™ permit a 9% annual increase in RMR charges. You’d be wise to religiously apply those increases across the customer base; don’t miss a year. The increase is not particularly significant; the $40 will go to $43.60. You do not need to notify the customer of the increase; the customer has already consented to the annual increase.
Some states permit businesses to discount the price for cash payment. I suppose only a politician is the only one dumb enough to encourage a cash business [which obviously lends itself to a untaxed operation], but that’s what we have in many places. It’s may not be practical when invoicing by mail, but restaurants, gas stations, etc, are offering cash discounts.
I had one of K&K attorneys prepare a memo on the law in California. Here’s the memo on how to pass along the processing fee; disclosure to the consumer is the key criteria:
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Ken
Instead of increasing the price to offset the fee, the company may pass along the fee to the customer so long as they are in compliance with California disclosure statutes. Most case law and statutes are silent as to ACH processing fees but there are regulations set in place regarding credit card fees and other surcharges to customers.
Cal Civ. Code §1748.1 prohibits merchants from adding a surcharge when customers pay by credit card instead of cash, but permits retailers to offer discounts for payment by cash or check. However, in 2018, the 9th Circuit found that this law was unenforceable as a commercial speech violation, but the law was never overturned. Now, it is generally applied as unenforceable to businesses similar to the ones that brought the case (restaurants, dry cleaners, gas stations, transmission services).
As of July 1, 2024, most CA business must comply with the new “hidden fees” statute (CA SB 478) which stipulates that a business advertising a good or service (for the customer’s personal use) must include all required fees in the total price. These “required fees” do not include government taxes, shipping costs, and later fees incurred due to the customer’s conduct. A credit card processing fee is not a mandatory fee if the customer can avoid the fee by paying a different way (e.g. cash.) However, if a business only accepts credit cards as a form of payment, then the credit card fee is mandatory and would have to be included in the advertised price.
Therefore, if you are going to charge customers with this fee, it is recommended to disclose this fee in the total price in compliance with the new CA “hidden fees” statute.
The law does not require companies to provide a breakdown of the various fees or charges included in the listed or advertised prices (but such disclosure would be well-advised).
https://oag.ca.gov/hiddenfees
https://oag.ca.gov/consumers/general/credit-card-surcharges
Matt Duffy, Esq
Kirschenbaum & Kirschenbaum
Admitted in California
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
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