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Thursday, March 30, 2017

High Court Orders Closer Look at New York Credit Card Fee Law

By: McIntyre & Lemon, PLLC

Yesterday, the Supreme Court of the United States held that a New York law that
prohibits merchants from charging customers a credit card fee – also known as a “swipe
fee” – if they refer to the fee as a “surcharge,” may violate the First Amendment and has
ordered a lower court to take a second look at the law. The case is relevant to banks and
insurance agencies that permit their customers to charge insurance premiums on a credit

The case involves several New York State merchants that would like to charge
their customers swipe fees. The merchants would also like to call the swipe fees
“surcharges,” an amount that is added on to the regularly posted price.

Currently, the New York law prohibits merchants from adding swipe fees as a
surcharge. Instead, the law allows merchants to offer discounts if customers pay in cash.

The merchants argue that because the law prohibits surcharges but allows
discounts, the law does nothing more than ban the way the merchants can communicate
the swipe fees. Put another way, the merchants argue that the law does not regulate
whether they can charge credit card customers more than cash customers (to account for
the swipe fee). The law only prohibits the merchant from describing the difference in the
price as a “credit card surcharge.” They must instead call the difference a “cash

For example, assume a product costs $10.00 but it costs $10.30 to buy it with a
credit card. It is permissible to say that the product’s price is $10.30, but that there is a
30 cent discount if the customer pays by cash, but it is not permissible to say the
product’s price is $10.00 but there is a 30 cent surcharge if the customer pays with a
credit card.

The Supreme Court sought to answer two questions about the law: (1) does the
law regulate speech (as the merchants claim), which would implicate First Amendment
concerns; and (2) if the law does regulate speech, does it violate the First Amendment’s
Free Speech guarantee?

On the first question, the Supreme Court was convinced by the merchants’
arguments. The Court found that the New York law did not regulate what the merchants
could charge cash customers and credit card customers. Moreover, it did not prohibit
merchants from charging customers different amounts based on their payment methods.
But “[w]hat the law does regulate is how sellers may communicate their prices. A
merchant who wants to charge $10 for cash and $10.30 for credit may not convey that
price any way he pleases.”

Thus, the Court concluded, “[i]n regulating the communication of prices rather
than prices themselves, [the New York law] regulates speech.” This raises First
Amendment concerns.

On the second question, whether the law violates the First Amendment, the Court
punted. The Court noted that the lower court, the Second Circuit Court of Appeals, did
not address this second question. According to the Supreme Court, there may be valid
reasons for a state to enact this law. That would mean that the law does not violate the
First Amendment even though it raises First Amendment concerns. The Court wants the
Second Circuit to address this question first.

The Court has sent the case back to the Second Circuit and ordered the lower
court to consider whether this law, which regulates speech, violates the First Amendment.

This decision means that the case is still ongoing and has not decided whether
laws that prohibit credit card surcharges (but allow discounts) are unconstitutional.