Understanding Surcharging in Colorado: Legal Risks and Alternatives

The Legal Landscape of Surcharging in Colorado

Colorado has specific laws governing how merchants can apply surcharges to credit card payments. House Bill 19-1234, passed in recent years, clarified the rules around surcharging and aimed to protect consumers from unexpected fees.

Under Colorado law, merchants must:

• Clearly disclose any surcharge before the transaction.

• Limit surcharges to the actual cost of processing the credit card payment.

• Avoid surcharging debit card transactions or prepaid cards.

• Comply with card network rules, such as those from Visa and Mastercard.

  
  

Failure to follow these rules can result in legal penalties and enforcement actions by the Colorado Attorney General’s office. Merchants who apply surcharges indiscriminately risk violating consumer protection laws and card network agreements.

The law’s intent is to promote transparency and fairness, but many merchants find the requirements complex and difficult to maintain consistently. This complexity increases the risk of non-compliance, especially for small and medium-sized businesses without dedicated legal or compliance teams.

Why Indiscriminate Surcharging Poses Risks

Many merchants add surcharges without fully understanding the legal framework or the card network rules. This practice can lead to:

• Consumer complaints and negative reviews when fees appear unexpectedly.

• Fines and penalties from state regulators for violating disclosure or fee limits.

• Chargebacks and disputes triggered by confused customers.

• Termination of merchant accounts by payment processors due to non-compliance.

  
  

For example, a Colorado restaurant added a flat 3% surcharge on all credit card payments without disclosing it clearly. After several customer complaints, the business faced an investigation by the Attorney General’s office and was forced to refund fees and pay fines. This case illustrates how surcharging without proper compliance can damage reputation and finances.

How a Cash Discount Program Works as a Compliant Alternative

A cash discount program offers merchants a way to reduce payment processing costs without the legal risks tied to surcharging. Instead of adding a fee for credit card payments, merchants offer a discount for customers who pay with cash or debit cards.

Key features of a cash discount program include:

• The posted price is the higher credit card price.

• Customers paying with cash receive a visible discount at checkout.

• No additional fees are added to credit card transactions.

• Clear signage and disclosure ensure transparency.

  
  

Because the credit card price is the standard price, and cash payers receive a discount, this approach complies with Colorado laws and card network rules. It avoids the legal risk of surcharging while encouraging customers to use lower-cost payment methods.

Point-of-sale terminal with cash discount signage in Colorado coffee shop

Benefits of Implementing a Cash Discount Program

Merchants who switch to a cash discount program can enjoy several advantages:

• Lower processing fees by encouraging cash payments.

• Reduced compliance risk since no surcharges are applied.

• Improved customer satisfaction through transparent pricing.

• Simplified accounting with fewer fee adjustments.

• Avoidance of fines and legal disputes related to surcharging.

  
  

A Colorado retail store implemented a cash discount program and saw a 20% increase in cash transactions within three months. This shift reduced their overall card processing fees by 15%, saving thousands of dollars annually. The store avoided any legal issues and received positive feedback from customers appreciating the clear pricing.

Practical Steps for Merchants to Stay Compliant and Save Money

Merchants interested in adopting a cash discount program should:

• Review Colorado’s surcharging laws and card network rules carefully.

• Clearly communicate pricing and discounts to customers with signage.

• Train staff to explain the program and handle questions.

• Work with payment processors experienced in cash discount programs.

• Monitor transactions regularly to ensure compliance.

  
  

By taking these steps, merchants can reduce their legal risk and improve their bottom line without alienating customers.

Small business owner in Colorado reviewing payment and compliance documents

Conclusion: Protecting Your Business and Enhancing Financial Health

Merchants in Colorado face real challenges with surcharging due to complex laws and potential penalties. Indiscriminate surcharging exposes businesses to legal and compliance risks that can be costly and damaging. A cash discount program provides a clear, compliant alternative that helps merchants save money and maintain customer trust.

Business owners should carefully evaluate their payment practices and consider switching to a cash discount program to avoid future issues. Taking proactive steps now can protect your business and improve financial health in the long term.

If you’re looking for a way to streamline your payment processing while staying compliant, consider exploring the benefits of a cash discount program. It’s a smart move for your business and your customers.