Operations

New York adopts new rules for passing along credit-card fees to customers

The measure is the latest instance of lawmakers and consumers trying to bring more clarity on restaurant service fees.
Customers must be alerted to a pass-along charge before the sale takes place. | Photo: Shutterstock

In yet another effort to put guardrails on restaurants’ growing use of service surcharges, the state of New York has set new rules for passing along the fee for processing credit card charges to restaurant customers who pay with plastic.

A law that took effect Sunday requires restaurants to either set one price on menus and menu boards, with a processing fee already factored into the stated charges, or to present two prices, one for paying cash and the other for paying with a credit or charge card. The information must be provided to customers before they order rather than presented to them when they pay.

The new regulations also mandate that only the actual amount of a swipe fee be passed along. Restaurants cannot charge more under the argument that processing requires more of their time and labor.

The measure was signed into law in December by Gov. Kathy Hochul to provide restaurant customers and operators with clearer information about how and when credit-card fees can be passed along to patrons. Hochul indicated at the time that the law doesn’t change policy as much as clarifying the why’s and how’s of when credit-card processing fees can be passed along.

“This law will ensure individuals can trust that their purchases will not result in surprise surcharges,” the governor said at the time.

Efforts are underway on several fronts to set ground rules for the use of service fees, which have become an increasingly popular way for restaurants to offset soaring food and labor costs. Operators have embraced the add-on charges as a way of protecting margins without presenting customers with menu prices that might scare patrons away.

The Federal Trade Commission has been collecting feedback from consumers, operators and other stakeholders on curbing restaurant surcharges of all types, part of an effort by the regulatory agency to curb what the White House has termed “junk fees.”

Initially, the FTC was focused on the fees concert-ticket sellers, hotels, airlines and other industries add to their stated prices, often to the surprise of customers. In seeking comment on proposals to eliminate or govern those extra charges, the agency fielded a number of complaints about restaurant service fees as well, prompting it to expand the scope of its intended rules.

Those final rules have yet to be aired.

Meanwhile, lawmakers in Virginia have taken up their own anti-junk-fee bill.

Two restaurants in Washington, D.C., have been sued by Travelers United, a travelers’ advocacy group, for tacking a service fee onto customers’ tabs. One of the surcharges, levied by the local multiconcept operator Knead Hospitality and Design, was a 3.5% add-on, an amount often charged to cover credit-card swipe fees.

Both Knead and the other operator sued, Clyde’s Restaurant Group, subsequently discontinued their service fees.

Travelers United told Restaurant Business that it intended to pursue other challenges of service fees, in Washington and elsewhere.

The District’s City Council is now considering legislation that clarifies how proceeds from service fees can be used by restaurants. A provision also disallows the funds from being factored into the computation of an establishment’s rent.

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