Updated:Courts Grab The CU Spotlight

September 30, 2015 at 9:15 am 1 comment

The legal system is grabbing the spotlight in credit union land today. Most prominently   Louis Jimenez, who was removed as Montauk credit union’s CEO is suing the NY Department of Financial Services alleging that he has been illegally forbidden from consulting with outside legal Counsel without first obtaining a waiver from the Department. Here is an article from the Post. http://nypost.com/2015/09/29/ceo-of-credit-union-with-delinquent-taxi-medallion-loans-says-state-wont-let-him-consult-with-lawyer/


The Court of appeals for the Second Circuit reversed a lower court ruling, Expressions Hair Design v. Schneiderman, 975 F. Supp. 2d 430, (S.D.N.Y. 2013), that had struck down as unconstitutional a NY statute banning merchant from imposing surcharges on credit card purchases. This ruling has importance well beyond New York.  There are at least 10 states that ban credit card surcharges, many of which are being challenged on similar grounds. Yesterdays’ decision is the first to be decided by a federal appeals Court. The Association wrote an amicus brief in support of the surcharge ban.

First , some background. Once upon a time the Truth In Lending Act banned credit card surcharges. In 1984 congress let this prohibition lapse and New York responded by passing Section 518 of the General Business Law which is similar but not identical to the expired federal law: It provides that:

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. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.”

Crucially 518 has been interpreted as allowing merchants to offer a cash discount on an item’s sticker price. What merchants can’t do is impose a surcharge on the sticker for a credit card purchase . Critics argue that it imposes a distinction without a difference that keeps merchants from accurately expressing a product’s true cost in violation of the First Amendment. “Not true” say the law’s supporters. Merchants can categorize the ban as they wish. What they can’t do is raise the price of a product just because a credit card is being used. (In its Amicus brief the Association pointed out that in Australia, which authorized surcharges last decade surcharges were used not as a means to recover transaction costs but as a means to generate merchant revenue).

In the first round of litigation the Federal district Court struck down the law,  It described New York’s prohibition as “incomprehensible” and it was this ruling that the court reversed yesterday.

First, the Court broke the claims into two distinct types of price postings, “sticker price schemes” in which merchants advertise a single cash price with notice of a surcharge posted on top of the cash amount and “dual pricing schemes” in which merchants posts two separate prices for credit card and cash purchases. The Court flatly rejected the argument that bans on sticker price surcharges were illegal. It concluded that 518 does not regulate speech but prices and pointed out that “[P}rices, although necessarily communicated through language, do not rank as “speech” within the meaning of the First Amendment.”   Furthermore, whereas the district court concluded that 518 was nothing more than a labeling prohibition the Court concluded that it was a legitimate exercise of legislative power.

“although the difference in the consumer’s reaction to the two pricing schemes may be puzzling purely as an economic matter, we are aware of no authority suggesting that the First Amendment prevents states from protecting consumers against irrational psychological annoyances.”

The Court did not rule on the constitutionality of New York’s law as applied to “dual pricing” postings so it’s possible that we haven’t seen the last of challenges to surcharge ban litigation. I know you can’t wait,

Entry filed under: Legal Watch, New York State. Tags: .

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1 Comment Add your own

  • 1. Florida and New York Clash | new york's state of mind  |  November 6, 2015 at 8:53 am

    […] that made it a misdemeanor to impose a surcharge on credit card purchases. As readers of this blog will know, the Court of Appeals for the Second Circuit, which has jurisdiction over New York, […]


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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