Credit card surcharge law divides U.S. Supreme Court

Credit card surcharge law divides U.S. Supreme Court

By Gary Gately   
The U.S. Supreme Court building (TMN photo)

WASHINGTON – The U.S. Supreme Court appeared split Tuesday over a New York state law stipulating that merchants can’t tack on a surcharge for credit card purchases.

At the center the case, whose outcome could affect billions of dollars’ worth of purchases nationwide, is whether the measure violates merchants free-speech rights, as merchants claim. Merchants contest the ban, saying it prevents them from telling customers the actual price of paying with a credit card instead of cash.

Justice Samuel Alito said he understood merchants’ argument.

“That is mandated speech,” Alito said. “They are forcing the merchant to speak in a particular way.”

And Justice Anthony Kennedy said the New York law results in merchants being penalized for presenting “truthful information.”

But some justices said they didn’t see the dispute over the New York law pertaining to free speech.

“I just don’t see anything about speech in the statute,” Justice Sonia Sotomayor said. “The statute simply says, ‘No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.’ To me, it’s very simple: ‘One price for everything.’”

New York and nine other states ban the surcharge on credit card customers.

The New York law allows merchants to reduce a price if a customer pays cash, but it’s a misdemeanor for a merchant to increase the price if a customer pays with a credit card. Thus the case revolves around how merchants inform customers about the so-called swipe fees.

Chief Justice John G. Roberts Jr. pointed out the prices for paying cash and using a credit card are the same no matter how they’re described to customers.

Roberts said it would be “a very patronizing and condescending view of the capabilities of the American consumer” to assume the “American people are too dumb” to do the math.

In states that don’t ban the surcharge, businesses often tack on the surcharge in hopes of getting customers to pay with cash.

Banks charge merchants fees averaging about 2 percent for credit card transactions, and the fees total more than $50 billion a year annually and drive up costs for consumers, the National Retail Federation argues.

Steven Wu, New York’s deputy solicitor general, told the justices the law targets pricing practices, not speech, and passes constitutional muster.

But Deepak Gupta, an attorney representing petitioner Expressions Hair Design in Vestal, N.Y., disputed that contention.

“This case is about whether the state may criminalize truthful speech that merchants believe is their most effective way of communicating the hidden cost of credit cards to their customers. By design, New York’s law suppresses the message that you pay more,” Gupta said.

Expressions Hair Design, a unisex salon, is the lead plaintiff in the case. A federal appeals court threw out a challenge to the New York law.

Justice Stephen Breyer expressed concern that if the high court bans the surcharge, it could revert to earlier practices when it threw out state price regulations.

“We’re going to discover all kinds of price regulation all over the place suffering from problems, and we’ll have judges substituting for regulators all over the country,” Breyer said.

“The court should stay out of this because if we don’t, we are going to discover all kinds of price regulation all over the place that suffers to greater or lesser degrees from this kind of problem, and you’ll have judges all over the country substituting for regulators and others in trying to regulate.”

A decision in Expressions Hair Design v. (New York Attorney General Eric) Schneiderman is expected by June.

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