The Supreme Court Weighs in on Merchant Surcharging

30 Mar

On March 29, 2017, the United States Supreme Court issued its long-awaited decision on the litigation surrounding the New York law that prohibits surcharges.  In Expressions Hair Design, et al. v. Schneiderman, Attorney General of New York, et al., the Supreme Court was asked to decide whether a New York law prohibiting merchants from charging credit card users a surcharge above the sticker price was constitutional.  The practical outcome of the Supreme Court decision is that it does not definitively  answer whether the 10 state laws that prohibit surcharges are unconstitutional.  The technical outcome is that the Court remanded, or sent back, the case to the lower court, requiring the lower court to determine whether the law is an unconstitutional violation of the First Amendment.

The Court first reviewed the history of efforts to pass along interchange costs to consumers.  The Court noted that merchant contracts historically barred merchants from charging credit card users higher prices than cash customers, which Congress put a stop to when it passed the Truth In Lending Act.  That law prevented surcharges and it prevented merchants from giving discounts to cash customers.  When Congress allowed the federal surcharge ban to expire, ten states, including New York, enacted their own surcharge bans.

The merchants in the Expressions Hair Design case were five New York businesses who wished to impose surcharges on customers who used credit cards.  As a result, they wanted to advertise their prices by posting a cash price and a price which included a surcharge.

The pivotal issue was whether the surcharge ban regulated conduct, i.e., was a price regulation, rather than speech.  Because the statute told merchants nothing about the amount they were allowed to charge, the Court concluded that the law regulates how sellers communicate their prices, not what they charge.  “In regulating the communication of prices rather than prices themselves, [the New York law] regulates speech.”

The Supreme Court, having determined that the law regulates speech, and not conduct, sent the case back to the lower court to analyze whether it violated the constitutional right to free speech.  The lower court had concluded that the law regulated conduct, and therefore did not analyze that issue.

As you may recall, ten states currently have laws banning surcharges.   Many of these statutes also have been challenged on First Amendment grounds.  In this case and in a parallel Texas case, the federal appellate courts upheld the state statute. In contrast, the Eleventh Circuit struck down Florida’s law governing surcharges.

The Supreme Court decision did not address whether the New York law was constitutional, but it did conclude that the statute regulated speech and had to be analyzed under First Amendment standards.  That decision is binding on other courts.  So, to the extent challenges to similar state statutes were rejected because the court did not think free speech was involved, those decisions will have to be revisited.  The ultimate effect of this decision will depend on whether the case makes its way back to the Supreme Court after the lower court rules again, and how the courts interpret the various state laws that prohibit surcharges.

For now, industry companies should act as though the ten state laws that ban surcharging are still effective.

But stay tuned.

–Eric Linden, Attorney and Partner, Jaffe, Raitt, Heuer & Weiss, P.C.

–Holli Targan, Attorney and Partner, Jaffe, Raitt, Heuer & Weiss, P.C.

Holli Targan

Attorney & Partner

htargan@jaffelaw.com

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