In the ongoing skirmishes between card networks and merchants in the surcharge world, the U.S. Supreme Court has just issued a significant ruling on a novel theory. Merchants in the State of New York sought to charge consumers higher fees for purchases made by credit cards. New York state law contains a prohibition on the imposition of surcharges in such instances. The law states that merchants may not “impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check or similar means.” N.Y. Gen. Bus. Law §581. The law is similar to a prohibition on surcharging credit card use that the major card networks had previously imposed on merchants, but which was challenged as a violation of the anti-trust laws and consequently, has not been in effect for some time. The merchants had argued that the law prohibits free speech by regulating how they communicate the surcharge to their customers. The merchants used the “single tag” method, in which the cash price appears on the item; consumers were advised that the surcharge amount is in addition to the amount on the price tag. The merchants are not prohibited from discounting prices for payment by cash.
The State of New York’s position was that the law regulates the actions of the merchants. The District Court found in favor of the merchant’s free speech argument, however, the Second Circuit vacated that judgment and instructed the District Court to dismiss the case. In the view of the Second Circuit the law did not violate the merchants’ right of free speech under the First Amendment. The U.S. Supreme Court determined that the law does regulate speech and remanded the case to the Second Circuit for a determination of whether the law violates the First Amendment.
The free speech concept argued in this case, that the law prohibits the merchants from communicating the surcharge to their customers, marks a novel Constitutional argument. The outcome may be the final resolution of this long running pricing battle. Other states have similar prohibitions on surcharging so the decision could reverberate outside of the Second Circuit. We will be following developments very closely.
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