Gas Stations’ Credit Card Surcharge Raises Questions

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Lawmakers and consumer groups are renewing a call to stop service stations from charging consumers extra money when they pay for gasoline with credit cards.

Last month, The Press surveyed gas stations from Riverside to Montauk. Of 33 stations, 14, or about 42 percent, were charging more for credit card purchases than for cash purchases, with the difference ranging from 10 to 17 cents more per gallon. If the average car holds about 15 gallons of gasoline, filling the tank with a credit card could cost an extra $2.50 in many cases.

New York State law forbids the practice of charging a surcharge for credit card purchases for all industries, as do nine other states—but the practice continues, because merchants have found a loophole: they insist that they are offering a discount for cash rather than a surcharge for credit.

“I’ve got legislation trying to limit how much more they can charge for credit card use,” said State Assemblyman Fred W. Thiele Jr., who has been tracking gas prices since Memorial Day 2011. It’s part of his battle against regional gasoline pricing, which is when gas stations in a particular geographical area artificially raise the price of gas based solely on location and time—the Hamptons in summer, for example—rather than any increase in expenses.

“The bill will get rid of the discount-for-cash loophole,” Mr. Thiele said of the conflicting state laws that allow merchants to apply discounts for cash, which makes a ban on credit card surcharges irrelevant. “It’s more than a loophole, by the way, when you can drive a truck through it,” he added.

Following a 2008 investigation by then Attorney General Andrew M. Cuomo that culminated in Mr. Cuomo calling Long Island a hotbed for deceptive practices in the gasoline industry, 43 gas stations on Long Island were sent cease-and-desist letters telling the owners to stop charging more for credit cards. “Customers who use credit cards already pay a premium to their credit card company,” Mr. Cuomo said at the time of interest and other fees.

“The credit card issue has really only sprung up in the last few years, and I’ve had the bill around since it has been an issue,” Mr. Thiele continued last month. “There is a very large pushback from major oil companies, who oppose any regulation of their business.

He added that he has picked up State Senator Kenneth P. LaValle as a co-sponsor to his bill, which may be the extra push the bill needs to pass.

“I think it is unfair. I don’t know what is unique to the gasoline business that allows them to do this,” said Mr. Thiele. “I don’t go to the restaurant and see two different prices. It’s just a ruse to inflate the bottom line, discriminating against those who pay with credit cards, which is a majority of people today.”

According to a Wall Street Journal investigation into the practice last summer, credit card companies charge merchants an average of 2 percent on all purchases nationwide. According to the Press survey, gas stations that do have different prices for cash and credit charge customers an average of 2.5 percent more for using a credit card.

“Gasoline prices appear to have no rhyme or reason, especially on eastern Long Island,” said Robert Sinclair Jr., AAA’s New York media relations manager. “The merchants are pretty creative in what they do. They’re pretty slick getting around that surcharge law by saying they give discounts for cash. We’re cognizant of it, and don’t agree with it—it certainly doesn’t seem fair. But there are no federal price controls. The market dictates whether or not they can get away with it.

“There used to be a lag of four to six weeks between crude oil prices going up and the prices at the pumps changing,” continued Mr. Sinclair. “Now, prices [for crude oil] go up on the futures market, and immediately the pump price goes up. They’re charging us for their future expenses on top of charging for their cost-of-doing-business expenses—credit cards. It is guaranteeing their profit. It’s called inventory protection. It’s ludicrous.”

The issue, according to Mr. Sinclair, is that the majority of people don’t care why they are paying extra, all they care about is the bottom line. “The only time we get inundated with complaints is when gas hits $4 per gallon. Universally, that is the price that consumers see as unacceptable, regardless of whether they are paying credit card or cash,” he said.

Claire Rosenzweig, president and CEO of the metro New York Better Business Bureau, said her organization doesn’t have an opinion as to whether the surcharge is ethical, but said she advocates for trust in the marketplace.

“It is about signage and notification,” she said. “If you don’t see signage, then ask. You should know what you are paying for and why. It is always a good practice for businesses to be transparent, though, and clearly label a price as credit or cash.”

In the case of last month’s survey, all South Fork stations charging extra for credit had properly displayed their cash prices with their credit prices below. Only one, the more eastern of the two Hampton Bays Shell stations, had any notification that a selection of debit by the customer would treat the transaction as one made with cash, not credit.

According to Michael J. Fox, executive director of the Gasoline and Automotive Service Dealers of America, the group that successfully lobbied Congress to allow merchants to give discounts for cash, consumers should ask for the cash price of anything—not just gas. “Federal law allows retailers to offer a discount for cash,” Mr. Fox said. “If you change the law, you are penalizing the person who pays with cash. With this method, we are giving people a choice. There are many other businesses that offer cash discounts.”

When asked to name a few businesses that routinely charge different prices depending on the method of payment, Mr. Fox said, “Consumers need to start asking, ‘If I pay with cash, will you discount my bill?’ They’ll be shocked how many will say yes.”

He summarized by saying, “People say they don’t want to pay a service charge? Well, neither do we. Some places pay $15,000 a month on credit card fees.”

One the other hand, Karl Rumph, a Southampton resident, had a question: “If they just stopped accepting credit cards, it would cripple their business—so if they want to accept them, shouldn’t they accept that it comes with a cost?”

When it was relayed to Mr. Fox, he simply replied, “No.

“Some businesses get away with a 1,000-percent markup,” Mr. Fox said in answering Mr. Thiele’s earlier question about credit card charges for gas stations versus restaurants. “Sometimes these fees are even higher than our markup,” he said. “We make about 10 cents on every gallon of gas we sell.”

Numerous gas station owners throughout Southampton and East Hampton towns were contacted in person or by phone, but none wanted to discuss the practice.

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