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For a handful of California retailers, a Ninth Circuit decision basically invalidates the state law prohibiting merchants from charging customers an additional fee, or surcharge, for using a credit card. Unfortunately for retailers across the state, the decision only applies to the parties to the action.
Under current California law, a retailer cannot charge customers more for using a credit card. Rather curiously and somewhat hypocritically, under the law, a retailer can legally offer a discount to cash paying customers. Basically, it all boils down to how the price and discount are communicated, which turns this into a First Amendment commercial speech issue.
The California law is aimed at an odd form of discrimination: socioeconomic. By requiring credit card users to pay a "surcharge" for using credit, individuals who rely on credit cards are charged more than individuals that can pay in cash. However, in recognizing that a business benefits when customers pay in cash, the law allows businesses to pass on the those cash benefits to consumers in the form of a cash discount. These cash discounts tend to reflect the cost of credit card processing fees.
The businesses that challenged this law claim that the law is a First Amendment restriction on how each business can communicate their prices to consumers. The businesses claim that consumers will be more motivated to pay in cash if there's a penalty for using credit versus a reward for using cash. Essentially, these businesses are saying that consumers are so loss adverse that the semantic difference between a cash discount and a credit surcharge makes a big difference.
While the court only invalidated the law as to the plaintiffs' businesses, the opinion seems to lay the groundwork for a subsequent challenge that would apply statewide. The decision applies intermediate scrutiny to the law, showing that it does not pass constitutional muster. The circuit court recommended that the state use better means to prevent retailers from deceiving consumers when it comes to price differences related to methods of payment.
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