Courts Hold That NY Law May Violate Merchant Rights

Merchants won an important, but by no means decisive, battle yesterday in their campaign to invalidate state laws outlawing credit card surcharges. However, there are still more rounds to go.

In Expressions Hair Design v. Schneiderman, No. 15-1391, 2017 WL 1155913, at *2 (U.S. Mar. 29, 2017) the Supreme Court examined the constitutionality of Section 518 of New York’s General Business Law. The statute, which has been on the books since 1984, bans credit card surcharges, but allows merchants to offer cash discounts. In their lawsuit the merchants have argued that there is no practical distinction between a cash discount and a surcharge. They argue that all the statute does is make it illegal for them to describe higher charges for credit card purchase as surcharges in violation of the First Amendment. The New York State Attorney General, joined by among others, the New York Credit Union Association and CUNA argue that surcharge bans are legitimate regulations. In fact, countries around the world have banned surcharges as evidence mounts that merchants impose surcharges well in excess of transaction costs.

The court of appeals for the Second Circuit concluded that the statute was an appropriate exercise of legislative authority, since it regulated merchant conduct as opposed to merchant speech. Specifically, New York’s ban regulated a relationship between a products sticker price and the price charged to a credit card user.

Yesterday the Court disagreed, concluding that the statute does restrict merchant speech and may violate the First Amendment. The reason I underlined “may” is because the case now goes back to the second circuit which now must decide if the law is legal even though it restricts merchant’s speech.

Commercial speech is protected under the first amendment but disclosure requirements are upheld when they further a substantial government interest and are designed to directly address the activity being regulated. Before deciding the case again it is possible that the Second Circuit could ask New York’s highest court, New York’s Court of Appeals, to determine precisely what Section 518 prohibits.

Stay tuned.