Massachusetts credit card surcharge ban and cash discounts for restaurants

A restaurant owner who reads that card surcharges are legal in most states and adds a two or three percent fee to the check in Massachusetts has made a mistake that the statute spells out in one short sentence. General Laws chapter 140D, section 28A, bars a seller from imposing a surcharge on a cardholder who elects to pay by credit card. It also protects a different practice, the discount for paying in cash. Our multi-state guide on card surcharges names Massachusetts among five states, and this one goes deeper.

What does the statute say about surcharges?

Subsection (a)(2) says no seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check or similar means. The language is plain and it has no percentage cap and no disclosure route. A restaurant, a bar, a food truck and a caterer are all sellers in a sales transaction. Unlike states that allow a capped and disclosed fee, Massachusetts does not give you a way to charge one.

What is the difference between a surcharge and a cash discount?

A surcharge adds to the price when the guest uses a card. A cash discount subtracts from the price when the guest uses cash. The arithmetic can be the same, but the law treats them differently. Subsection (a)(1) says a card issuer may not, by contract or otherwise, prohibit a seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check or similar means rather than by credit card. So your card processing agreement cannot forbid a cash discount, and the statute protects your right to offer one.

How must a cash discount be offered?

Subsection (b) addresses what a discount is not: it is not a finance charge if it is offered to all prospective buyers and its availability is disclosed clearly and conspicuously. Two conditions follow. The discount must be offered to everyone, not only to regulars you know. And it must be shown where guests can see it before they order. A sign at the door and a line on the menu that say a cash discount applies, with the amount, meet the spirit of both.

How should you word the menu and the check?

Start from the card price as your regular price, and show the cash price as a reduction. A line such as a 3 percent discount for paying with cash is clearer than a line that suggests cash has a lower price and card has a hidden fee. On the check, show the discount as its own line, so the guest can see it. Avoid describing the card price as a card fee or a surcharge, because that is the thing the statute bars. Read the sign out loud to a colleague before you print it; if it sounds like a fee, reword it.

Does the ban cover debit cards?

The statute speaks of credit cards and does not mention debit cards, so ask your processor and a lawyer how the rule applies to a debit payment before you set up a program. Check how your terminal tells debit from credit, since a program that treats them the same could reach a payment the statute covers.

What about online and phone orders?

The statute applies to any sales transaction, not only counter sales, so a surcharge on an online or phone order is barred as well. A cash discount is harder to offer online, because the guest is paying remotely, so many restaurants offer a pick-up price or a different channel instead of a cash discount. Ask your lawyer how to word an in-store-only discount so that it is offered to all.

What else changes your card costs?

If you cannot pass on a fee, you can reduce it. Ask your processor to review your rates and your statement each year. Compare the cost of a flat-rate plan with an interchange-plus plan at your average check size. Look at your chargeback rate, your monthly minimums and any equipment lease. Raising a few menu prices a small amount is lawful and often recovers the same money. Some owners offer a loyalty reward for paying in cash, but ask a lawyer before you do, since the statute's conditions are about a discount offered to all.

What should you do next?

Look at your last month of card statements and list every fee line. Check that no surcharge appears on any menu, check or order page. If you want a cash discount, write the wording, the percentage and the place it will be posted. Ask your processor to confirm in writing that your agreement allows it. Then read how Massachusetts treats other fees on the menu.

More guides for your business:

• Card surcharge rules: Massachusetts, Oregon, New York, New Hampshire and Arizona
• Massachusetts junk fee rules for restaurant service charges and surcharges
• Massachusetts automatic renewal rules for restaurant memberships

More in the US guides for food businesses.