Supreme Court inflicts blow on credit card surcharge ban
State laws like New York's affect merchants' speech, ruling says
By Fred O. Williams | Published: March 29, 2017
Expert on consumer credit laws and regulations
State laws that ban surcharges on credit card purchases took a possibly fatal blow on Wednesday, as the Supreme Court ruled that New York's anti-surcharge law muzzles merchants' speech.
The surcharge law "is not like a typical price regulation," Chief Justice John Roberts wrote in the court's decision. "What the law does regulate is how sellers may communicate their prices."
The anti-surcharge law allows merchants to charge a $10 cash price and $10.30 credit price, he wrote, but not $10 plus a 3 percent surcharge for card use. Since the money works out the same, the law regulates speech, Roberts concluded.
Card transaction networks such as Visa and Mastercard charge vendors "interchange fees" or swipe fees – typically 2 to 3 percent of each credit card transaction.
Ten states and Puerto Rico have similar surcharge laws to New York's, according to the National Conference of State Legislatures. The others are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma and Texas.
The Supreme Court did not strike down New York's law, although that may be the end result of its ruling. It sent the case – Expressions Hair Design vs Schneiderman – back to the appeals court in New York to determine if the law infringes on merchants' constitutional free speech rights. The appeals court had not considered that aspect, ruling that the law only regulates merchants' conduct.
Mixed reactions to
Opponents of state no-surcharge laws applauded the Supreme Court ruling.
"Thrilled by our #SCOTUS victory today in Expressions," Deepak Gupta wrote on Twitter. Gupta, a consumer rights lawyer, represented five New York merchants who challenged the law against New York Attorney General Eric Schneiderman. The businesses say they want to be allowed to recover credit card transaction fees through surcharges, instead of baking the cost into prices that everyone pays.
Georgetown University Law Professor Adam Levitin predicted the surcharge ban will be struck down on grounds it violates the First Amendment. "Technically, the opinion is narrow," he wrote in a blog post, "but I suspect the effect of the opinion will be much broader."
A retail industry group also applauded the decision, but said that credit card users don't face a wave of surcharges if state anti-surcharge laws fall.
"Most retailers have no desire to surcharge their customers for using credit cards," Mallory Duncan, general counsel of the National Retail Federation, said in a press release. Instead, having the ability to impose surcharges will give retailers leverage against further increases in swipe fees that card networks charge, Duncan said.
The fees, including debit card fees of 21 cents per card swipe, cost retailers more than $50 billion a year, the industry group said, driving up prices for shoppers.
Not all consumer advocates opposed the state surcharge bans, however. Public Citizen, for example, filed a brief in the case expressing concern that price rules designed to protect consumers could come under attack from businesses on First Amendment grounds.
Justice Stephen Breyer echoed the concern in a concurring opinion. "I agree with the court that New York's statute regulates speech," he wrote. "But that is because virtually all government regulation affects speech." Laws designed to prevent consumers from being deceived in commercial transactions should not be held to the same First Amendment standards as public expressions of opinion, Breyer argued.
The ruling was the second involving credit card surcharges this week. On Monday, the court let stand a lower court decision to throw out retailers' $7.25 billion settlement with Visa and Mastercard over their control of swipe fees.
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