Surcharge laws challenged at state level.

May 13, 2015 Lynn Larson

We are two years into the U.S. surcharging era. While the media coverage has seemingly quieted, heated debates are still occurring in some states. The eventual outcomes could drive other states to reconsider their stance. When the card networks lifted surcharge bans in 2013, New York, California and Florida were all “no surcharge” states. Then various types of merchants (most of whom are small) initiated litigation based on First Amendment rights, which muddied the waters.

Lawsuits

New York, case number 1:13-cv-03775; filed June 4, 2013
California, case number 2:14-cv-00604; filed March 4, 2014
Florida, case number 1:14-cv-00025;
filed March 5, 2014

The Claims

In general terms, the merchants associated with the lawsuits and their legal representation are centering their cases on communication versus economic injustices. They have argued that the laws allow them to promote discounts for cash payments, but prohibit them from enlightening customers about card acceptance fees, which customers end up paying in the form of higher prices—essentially, a surcharge.

The Rulings

The judges in these cases have mixed opinions. In October 2013, U.S. District Judge Jed S. Rakoff in Manhattan ruled in favor of the merchants, rendering New York unable to enforce the law. In Florida, U.S. District Judge Robert L. Hinkle dismissed a similar lawsuit in September of last year. The merchants there are appealing, while the state’s attorney general supports the original “no surcharge” law and is encouraging the court to uphold the judge’s decision. The pendulum shifted yet again when U.S. District Judge Morrison England in California agreed with the merchants on March 26 this year. The attorney general is asking the court to overturn this ruling.

Given the controversy, some legal experts think the issue will land in the Supreme Court.

Surcharges and Commercial Cards

In the Commercial Card industry, we know the issue has not disappeared for end-users. A June 2014 article by First Annapolis relayed a lack of surcharging in the United States, which was good news. However, such industry observations do not help when end-users continue to encounter suppliers who apply a surcharge to their Commercial Card payments. I recently heard one end-user in Kansas describe that an in-state supplier surcharges even though Kansas is a “no surcharge” state. If you are in a similar boat, consider contacting your state’s attorney general about the surcharge violations.

Has your organization discussed surcharges and taken any actions? It is beneficial to implement strategies and train cardholders accordingly. Check out the educational resources available from Recharged Education.

About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…

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Electronic payables insight to save you time.

May 4, 2015 Lynn Larson

The boom in electronic payables (ePayables) solutions, also known as electronic accounts payable (EAP), shows no signs of slowing. As organizations become more familiar with the opportunity, the buzz is less about “Should we do it?” and more about “Which type of EAP solution should we adopt?” I recently talked with end-user and industry veteran Larry Coffey, CPCP, who has experience with both primary types. He shared interesting insights that can help you avoid some bumps in the road.

Supplier-initiated Payments (SIP)

First, there are Virtual Cards, also known as supplier-initiated payments because they require the supplier to process a transaction. Larry relayed that, for suppliers, training on system usage—specifically, how to retrieve the Virtual Card number and process a transaction—tends to be lacking. This ultimately causes delays in getting payments into suppliers’ hands and creates more work for the buyer. Suppliers can get frustrated and they resist having to allocate resources toward the SIP process.

Buyer-initiated Payments (BIP)

The other primary type of solution is straight-through payments, also known as buyer-initiated payments, for which suppliers receive payments directly into their accounts without processing a card transaction. This can be great, but suppliers must notify the BIP provider if they change bank accounts; otherwise, payments are rejected. Larry notes that this happens more often than you might think. The problem grows when suppliers put the buyer on a credit hold because they are not receiving the payments.

SIP Tips

Discuss with your Virtual Card provider the training element for suppliers.
Do not stop at selling suppliers on the benefits of Virtual Cards. Ensure the ones who agree to SIP are comfortable with the related technology.

Access the full input from Larry to obtain another SIP consideration.

What will your organization decide regarding electronic payables? Will it be Virtual Cards, straight-through payments or none at all?

The Future

Larry sees a bright future for EAP, but stresses that growth requires more education. Many suppliers still do not understand what these solutions are, especially when there are different versions/options. Further, when suppliers struggle with the fee for card acceptance, the buying organizations often cannot adequately respond.

Best Practice for Sustainability and Growth

To attract and retain supplier participation, your organization must initiate the payments more quickly than checks and ACH. Shorten the payment window to, say, 15 days or “upon invoice approval.” Larry has seen firsthand the positive impact shortening payment terms have had on an ePayables program.

See what else Larry thinks might influence the future by accessing his conclusions within the complete content.

Final Thoughts

Regardless of what your organization decides to do, even if it is foregoing an EAP solution altogether, make an informed decision. Talk with your current provider and, to gather more information about the options, talk with other providers and end-users, too. Hear about the lessons learned by your experienced peers, like Larry, to avoid the same pitfalls. Ask what surprised them the most, what the biggest challenges were, and what they would do differently. Also access additional resources on ePayables from Recharged Education.

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Rebuilding a controls norm.

April 22, 2015 Lynn Larson

Media coverage of the Meitivs—the Maryland parents who have been in the news for allowing their two children to walk home alone from the park—has pushed the concept of free-range kids into the spotlight. It occurred to me that Purchasing Card programs have experienced an evolution similar to parenting. Increasing precautions is the new norm, but is it the right one? I think there is room for some free-range thinking about card program management.

Protection Has a Cost

Earlier this week, Star Tribune columnist Gail Rosenblum observed that, years ago, the so-called free-range parenting style was simply part of a normal childhood. Further, she wrote, “…Western kids never have been safer in countless ways. And more unwittingly endangered in another. In response to the uproar over her free-range actions, she [Danielle Meitiv] spoke of her distaste for how parents today ‘imprison our children inside and wonder why they’re obese and have no focus.’ By trying so hard to protect our kids, we’re cheating them of the coolest part of being a kid.” Read the complete article...

To rewrite that paragraph for P-Card programs:
Robust data-mining/auditing technology and the adoption of EMV cards have taken controls to a higher level, adding to the long-standing fraud protections and chargeback rights associated with cards. Yet, organizations are endangering card program growth when they remain rooted in heavy restrictions or have scaled back what is allowed. They have strangled usage and wonder why they are not seeing the expected card benefits. By trying so hard to protect against fraud, organizations are cheating themselves of the process savings and rebates.

Status of Your Organization

In the past, I have written about both extremes—over- and under-controlling a P-Card program. Where does your organization fall on the spectrum? If you’re right in the middle, that is ideal. How do you know? Evaluate your current controls. Conducting a risk assessment (and taking the necessary follow-up actions) should help you avoid the two broad risks:

a lack of effective controls, which increases the likelihood of fraud, misuse and abuse
applying too many controls, which are costly and impact the process savings inherent to P-Cards

Structure your controls to lock in P-Card benefits and help keep the program protected from fraud, misuse and abuse. — Structure your controls to lock in P-Card benefits and help keep the program protected from fraud, misuse and abuse.

Free-range card programs do not lack controls. Rather, it means management is familiar with, and employs, the effective measures that curtail risk while still allowing the program to grow and succeed.