In years past, Jonathan Razi hopscotched across the U.S. as CEO of CardX, persuading legislatures to kill bans on merchant surcharging. 

Fast-forward to today and as the chief product officer of Stax, he’s still trying to push states to update their perspectives on the issue of surcharging. Now, he’s focused on the next step in that evolution, codifying best practices for surcharging.

Most recently, Razi played a role in ushering a bill through the New Jersey legislature this month that caps surcharges at the cost to merchants of processing credit card transactions. 

“We provided industry expertise to assist the legislators with formulating the final bill,” said Razi, who founded CardX and sold that fintech to Stax in December 2021. “The New Jersey bill harmonizes very well with a growing national consensus for surcharging best practices,” he said by email.

Razi tracks surcharge legislation nationwide also because Stax is in the business of providing processing services to merchants, offering flat fee arrangements that include surcharging. He was instrumental in Colorado scrapping its ban in 2021, but he said there are still prohibitions in place in Connecticut and Massachusetts.

Several months ago, before the New Jersey bill passed, Razi was predicting there would be a trend in that direction. “My longstanding prediction has been that, as surcharging grows in the market, we will see more attempts to create guardrails around the surcharging option,” Razi said in April by email.

Middleman payments processors and independent sales organizations involved in selling processing services that happen between a merchant accepting a credit card payment from a consumer and the banks settling that payment have been on edge this year in the wake of a Visa move to cap surcharges at 3%. Reducing the amount of the surcharge can eat into their profits.

Industry professionals have said that they suspect Visa put that surcharge cap in place because it’s increasingly anxious about a negative reaction by consumers to those merchant surcharges. The cap could avoid those charges rising too much.

Aside from Visa’s new cap, the New Jersey bill generally echoes card giant Visa and No. 2 rival Mastercard’s existing rules that prohibit fees from exceeding their costs to process the payment, said Stephen Aschettino, an attorney with Norton Rose Fulbright in New York who counsels corporate clients in the industry. The law also reflects their rules that merchants must put consumers on notice when a surcharge is being imposed.

New Jersey is “not going any further,” than the rules, Aschettino said in a recent interview. “I’m not sure this really changes anything.”

Still, to the extent that some payments processing agents have said there could eventually be litigation over Visa’s 3% surcharge cap, a state law like New Jersey’s bill could provide cover. 

If it passes, that network rule “now has the force of law,” Aschettino said.

The way the law plays out in reality is still up in the air according to another attorney, Christopher Dryden, a lawyer in California who specializes in payments processing issues. 

He said he can’t fathom how merchants will comply with the legislation if it’s signed by New Jersey’s governor, because the data used for calculating their costs from interchange fees isn’t available on a real-time basis, and disclosing it could be tough anyway because of third-party proprietary information involved in the transaction, he said.

“I just don’t think compliance is possible based on the current infrastructure,” Dryden said in an interview last week.

He works with all types of clients who are downstream from the banks and doesn’t know of any service currently in the marketplace for making those quick calculations.

If the bill passes, merchants would likely try to calculate their costs, but then keep their surcharge a half percentage point below that expense to make sure they’re not violating the edict, he explained. That’s not a very effective strategy for them, he added. 

The bill is “a really good idea, but the assessments are small fractions of pennies and there are a lot of them,” Dryden said, whose Global Legal Law Firm is based in Encinitas, California.

Still, Razi sees it differently. If merchants use a processor that charges based on a flat fee then compliance wouldn’t be so difficult. His company Stax happens to provide such flat-fee services.

“If the merchant is set up with their processor so that all credit cards are assessed a single, flat rate by the processor, then the merchant would charge an offsetting percentage that is the same for all credit cards,” Razi said.

New Jersey Governor Phil Murphy is the one who will decide sometime this year if the bill makes sense. He is a Democrat, just like the legislators who pushed the bill through the legislature, and — according to one legislative sponsor — his office contributed to the bill, so it’s got some momentum moving it toward passage.