Texas court upholds Texas 'no surcharge' law

March 3, 2016

WASHINGTON (3/3/16)--The U.S. Court of Appeals for the Fifth Circuit has upheld a Texas state law, challenged by a group of merchants, that prohibits merchants from imposing a surcharge on a buyer who uses a credit card.

The Credit Union National Association (CUNA) filed an amicus brief in the case in August 2015. CUNA argued that allowing merchants to add additional surcharges to credit card transactions would allow them to receive the substantial value of participating in the credit card system, while passing costs along to consumers and financial institutions. The payments in question are generally known as interchange fees.

"This is a great win for credit unions, and at CUNA we are proud to have been involved in this suit as part of our unwavering support of our members in every possible venue nationwide, including the courts," said CUNA Chief Advocacy Office Ryan Donovan. "We applaud the court’s decision."

CUNA’s argument stated that surcharging credit card transactions may lead to consumers using other forms of payments. This would present a problem for credit unions that use interchange fees to fund their card and other programs. Interchange fees also help cover costs of card-fraud prevention and protection.

In addition, it could cause credit unions and other smaller institutions to re-evaluate their credit offerings and possibly exit the market. This would result in consumers having fewer credit cards from which to choose, forcing them to rely on only a handful of large issuers for credit and debit cards.