New York’s High Court Clarifies Credit Card Disclosure Law

October 24, 2018 at 9:12 am Leave a comment

Yesterday, New York’s Court of Appeals became the latest court to weigh in on what one judge has called New York’s “Allison Wonderland” law prohibiting merchants from charging surcharges for credit card payments but authorizing them to offer lower prices for cash payments. It took a couple of times reading the decision but I think the Court of Appeals has clarified the issue once and for all with the merchants having to settle for half a loaf. Now the case goes back to the Second Circuit.

Full disclosure: The Association submitted an amicus brief to both the Court of Appeals for the 2nd Circuit and the Supreme Court of the United States arguing that the statutes ban on surcharges does not violate the First Amendment. The Association is concerned that the merchants are using the First Amendment to do nothing more than pass on interchange fees to consumers who buy products with credit cards the merchants have agreed to accept.

§518 reads as follows: “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.” As the Court of Appeals commented yesterday, few statutes have produced such diverse interpretations.

The language is a cut-and-paste of language that used to be in the Truth in Lending Act as early as 1976. e In 1984, the federal statute was not removed and the New York Legislature  quickly imposed the prohibition as a matter of state law. The credit card companies also responded by prohibiting credit card surcharges in their merchant agreements. As a result, no one paid much attention to the state prohibition until the credit card companies removed the contract language as part of an anti-trust settlement. All of a sudden the only thing keeping merchants from imposing their interchange fee costs directly on to consumers was §518.

Which brings us to this case. Five small business merchants brought a lawsuit alleging that they wished to engage in differential pricing between credit card and cash payments and to inform customers of their practice by stating the cash price in dollars and cents but the credit card price as a percentage of the dollar-and-cents  amount. The merchants argue that the state law violated their right to communicate to the members how they were being charged for credit card charges.

At the Supreme Court the merchants won their core argument. The justices agree that the statute did implicate the First Amendment but because it was so difficult to figure out what exactly the statute prohibited, the case was remanded back to the 2nd Circuit which then asked the Court of Appeals   to clarify the following question: Specifically, it wanted to know “whether a merchant complies with §518 so long as the merchant posts the total dollars and cents price charged to the credit card users.” The answer to the question is crucial to the federal court  because the more the statute does nothing more than require a merchant to post accurate information as opposed to prohibit them from imposing a surcharge, the more deference it would show to the state when it applied the First Amendment to the statute.

Yesterday, the New York Court of Appeals responded with the following ruling: “We conclude that a merchant complies with GBL § 518 if and only if the merchant posts the total dollars-and-cents price charged to credit card users. In that circumstance, consumers see the highest possible price they must pay for credit card use and the legislative concerns about luring or misleading customers by use of a low price available only for cash purchases are alleviated. To be clear, plaintiffs’ proposed single-sticker pricing scheme — which does not express the total dollars-and-cents credit card price and instead requires consumers to engage in an arithmetical calculation, in order to figure it out — is prohibited by the statute.”

But even this decision underscored how perplexing the statute remains. One justice dissented; and one justice disagreed with part of the decision. In addition, two of the justices wrote their own opinions explaining why they would have reached the same result but for different reasons. This type of dissent is rare for New York’s Court of Appeals and demonstrates just how difficult this statute is to interpret.

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

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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