A layman would have a hard time equating a ban on credit-card surcharges with repression of free speech, but that was the crux of the argument Jan. 10 between lawyers for merchants and the state of New York as they debated for about an hour before before the U.S. Supreme Court over the legality of the state’s surcharge ban.
The New York case is the flashpoint of a national legal fight over card surcharges. Ten states have enacted laws that allow merchants to charge higher prices to consumers who pay with a credit card instead of cash, but require the merchant to communicate that price difference as a cash discount and not as a credit-card surcharge, according to a Supreme Court document.
The question opposing counsel argued before the eight justices was: “Do these state no-surcharge laws unconstitutionally restrict speech conveying price information … or do they regulate economic conduct?”
The 11th U.S. Circuit Court of Appeals in Atlanta has held that the laws do unconstitutionally restrict speech, while the Second and Fifth circuit appellate courts, in New York City and New Orleans, respectively, have held they only regulate economic conduct. The Supreme Court, which in September agreed to hear the New York case, tends to get involved when appellate courts differ on the same issue.
The Atlanta appellate court struck down Florida’s no-surcharge law while the New York and New Orleans appellate courts upheld bans in New York State and Texas, according to Bloomberg.
A group of merchants, led by Expressions Hair Design, a salon in Vestal, N.Y., are challenging the New York law that imposes up to a year in jail or fines of up to $500 on retailers who violate it, according to Courthouse News Service. The law does permit discounts for cash, but the merchants say that they cannot clearly communicate to customers how much it costs them to accept credit cards without being subject to criminal penalties.
The merchants’ attorney, Deepak Gupta of Washington, D.C., presented in a Supreme Court brief four pricing scenarios for a hypothetical pastrami sandwich sold at a New York deli for $10 in cash and $10.20 with a credit card. A: “$10 cash price/$10.20 credit-card price.” B: “$10 cash price/$0.20 surcharge per item added to credit-card purchases.” C: “$10 cash price/2% surcharge added to credit-card purchases.” D: “$10.20 credit-card price/$0.20 discount per item off cash purchases.”
Using the first three wording options has landed some merchants in legal trouble, according to Gupta. “As a result, only Option D—which you believe by far the least effective way of highlighting the cost of credit to consumers—appears somewhat safe,” his brief says.
In arguing the law violates the First Amendment’s guarantee of free speech and against it on other grounds, including that it is unconstitutionally vague, Gupta asserted that “merchants were told that they could bring themselves into compliance by changing only how they communicated their prices—not the amounts of the prices themselves. Any law that makes criminal liability turn solely on words used to convey truthful, lawful prices is a regulation of speech, subject to [First Amendment] scrutiny.”
But New York Attorney General Eric T. Schneiderman said in the state’s brief that the merchants’ characterization of pricing regulation as a speech restriction was meritless.
“This prohibition on credit-card surcharging is a direct price regulation that targets conduct and thus does not implicate the First Amendment at all,” the brief says. “Price controls have long been considered direct economic regulations that do not target speech because they regulate what sellers can do when collecting money from customers.”
The Supreme Court could render a decision in the case by late June.
In another surcharge case, the Supreme Court in late November dismissed appeals by Visa Inc. and Mastercard Inc. and cleared the way for independent ATM deployers to go to trial on their antitrust challenges to the networks’ ATM surcharging rules. The deployers say the rules prevent them from charging less for access to PIN-debit networks than to the Visa or Mastercard networks.