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A Free Speech Right to Credit Card Surcharges?

By Casey C. Sullivan, Esq. | Last updated on

New York State allows companies to offer price discounts to customers who pay in cash. But the state forbids imposing surcharges on credit card users. For retailers, this is more than just a question of semantics. Surcharges discourage credit card use more than discounts encourage cash, thus helping business avoid the two to three percent swipe fee companies like Visa or MasterCard apply every time a customer pays with plastic.

A coalition of New York businesses, led by a hair salon from outside of Binghamton, sued, claiming that the law violated their First Amendment rights. Yesterday, they won a narrow victory in the Supreme Court, with the Court ruling that New York's law implicates free speech rights and must be analyzed under those standards.

Credit Cards, Surcharges, and Free Speech

The strange nature of New York's law (yes to discounts, no to surcharges) can be traced back to the introduction of credit cards themselves -- and the spotty federal restrictions that followed. In their earliest days, card issuers often required companies to treat credit card payments the same as cash, despite the cards' extra fees. Congress intervened in 1974, barring card companies from contractually preventing discounts for cash-payers. A similar bar on credit card surcharges was imposed two years later.

The surcharge ban expired in 1984, but the provision allowing discounts remained in place. States like New York then stepped in, passing their own surcharge bans.

The practical effect of those state laws was relatively small. Credit card companies on their own contractually prohibited businesses from using surcharges, now that the federal ban was gone. But, recent anti-trust suits have stopped that practice, leaving state laws as the only barrier to credit card surcharges.

Hence the current litigation. The five businesses suing the Empire State in Expressions Hair Design v. Schneiderman all argue that New York's law violates their First Amendment rights. The state law doesn't regulate prices, they reason, but rather what they can say about those prices. That is, they can call a haircut's price $20.60, with a 3 percent discount for cash, but not $20.00 with a 3 percent surcharge for credit.

The Law Regulates Speech, SCOTUS Rules

The Second Circuit rejected this argument. New York's law was a simple price control, the court reasoned, requiring the sticker price and the price charged to credit card users to be the same. As a price regulation, its object was conduct, not speech.

The Supreme Court didn't buy it. In a unanimous decision written by Chief Justice Roberts, the Court explained that New York's law "is not like a typical price regulation."

Such a regulation -- for example, a law requiring all New York delis to charge $10 for their sandwiches -- would simply regulate the amount that a store could collect. In other words, it would regulate the sandwich seller's conduct.

Sure, that would require some speech, as the deli would have to communicate the price, but that speech is incidental. New York's surcharge law goes further.

The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer. [...] What the law does regulate is how sellers may communicate their prices.

"In regulating the communication of prices rather than the prices themselves," the Court concluded, the law "regulates speech." As such, it must be evaluated as a limit on speech.

A Win, but a Narrow One

The ruling is a win for the merchants, but not much of one. First, the merchants advanced only an as-applied challenge. Second, the Court rejected their argument that the law was unconstitutionally vague. Finally, the Supreme Court did little more than remand the case for First Amendment analysis. Certainly, the merchants could come out triumphant once that analysis is done, but several more rounds of litigation may lay ahead before the question is settled once and for all.

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