New York Credit Card Surcharges Get a Green Light as Merchants and the State Agree To Dismiss Lawsuit

Merchant plaintiffs and the state of New York filed motions Tuesday in a federal appellate court to dismiss the merchants’ challenge to New York’s law banning credit card surcharges. As a result, surcharges will be allowed when the merchant posts total prices for credit card purchases in dollars and cents.

The dismissal requests come in the wake of a New York state appellate court’s decision affirming merchants’ right to surcharge if they clearly inform consumers and do not make them do the math to determine the true price of a credit card purchase. In the bigger picture, the action means that another big state’s surcharge ban has fallen in the wake of bans being removed recently in Florida, Texas and California. Only six states now have such bans.

“With today’s resolution, we expect the New York law will survive, but in a far narrower form—and ‘no surcharge’ will simply mean ‘no surprise,’” Jonathan Razi, chief executive of CardX, a Chicago-based payment-technology company that automates compliance with surcharging rules, said in an emailed statement. “New York merchants are allowed to pass on their credit card fees so long as they make the required consumer disclosure.”

Razi predicts the surcharging will be available to merchants in all 50 states “in only a matter of months.”

The New York case has a long and unusual history. In 2013, a group of merchants led by Expressions Hair Design, a salon in Vestal, N.Y., challenged in federal court a state business law banning credit card surcharges on First Amendment grounds. The law permitted discounts for cash, but the merchant plaintiffs said they could not clearly communicate to customers how much it costs them to accept credit cards without being subject to criminal penalties.

The federal district court held for the merchants, but the state appealed and won in the Second U.S. Circuit Court of Appeals in Manhattan, which said the law regulated economic conduct, not speech. Then the case went to the U.S. Supreme Court, which heard arguments in January 2017. 

The Supreme Court said the law did regulate speech and sent the case back to the Second Circuit, which in turn asked the New York (state) Court of Appeals to answer this question: “Does a merchant comply with New York’s General Business Law § 518 so long as the merchant posts the total-dollars-and-cents price charged to credit card users?”

On Oct. 23, 2018, a divided court answered the question in the affirmative. The state court “further determined that ‘so long as the total dollars-and-cents price charged for credit card purchases is posted … merchants are free to call the price differential anything they wish,’” says a filing by the New York attorney general’s office. Merchants can call the differential a  “‘surcharge,’ ‘additional fee’ or ‘extra cost,’” according to the filing, quoting from the decision. 

The federal appellate court then called for lawyers to file supplemental briefs by Jan. 8. Last month, however, the merchants’ attorney, Deepak Gupta of Washington, D.C., decided not to pursue the case further. In a filing Tuesday, Gupta said he didn’t agree with “certain aspects” of the description New York state lawyers gave of the proceedings, but the appeal is now moot. Gupta could not be reached late Tuesday for further comment.