Posts tagged ‘Expressions Hair Design v. Schneiderman’

Meet Walmart, Your Friendly, Small Town Community Banker

Walmart signaled just how serious it is about expanding its offerings in the consumer banking sphere with the announcement that it lured away Omer Ismail to run its new FinTech joint venture.  On the off chance you don’t know who Omer Ismail is, he has been one of the key architects behind Goldman’s Marcus online consumer bank. 

Last month, Goldman announced that it was starting a joint venture with online FinTech Ribbit Capital.  As Bloomberg reported in breaking the news this morning, “Walmart’s move — depriving one of Wall Street’s elite firms of the talent atop its own foray into online banking — underscores the seriousness of the retailer’s intent to intertwine itself in the financial lives of its customers.” 

Stay tuned.

Surcharge Bans Continue to Fall

A federal court in Kansas last week became the latest court to strike down a state level ban on merchant surcharges for the use of credit cards.  This trend is hardly surprising following the Supreme Court’s ruling in Expressions Hair Design that a similar ban in New York State triggered First Amendment scrutiny. The case is CARDX, LLC, Plaintiff, v DEREK SCHMIDT, in his official capacity as Kansas Attorney Gen., Defendant., 20-2274-JWB, 2021 WL 736322, at *1 [D Kan Feb. 25, 2021]

Yours truly continues to be perplexed as to why so many consumer groups consider surcharging good policy.  The reality is that there after these laws are struck down, there is nothing that requires merchants to pass on the increased revenue to consumers paying cash.  This is a lesson that many New York consumers have already learned the hard way.

On that note, enjoy your day.  Who knew that 46 degrees could feel so balmy?  I, for one, am breaking out the sunscreen!

March 1, 2021 at 9:04 am Leave a comment

New York’s High Court Clarifies Credit Card Disclosure Law

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.

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

Updated:Courts Grab The CU Spotlight

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/

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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,

September 30, 2015 at 9:15 am 1 comment

Courts Grab The CU Spotlight

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/

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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,

 

September 30, 2015 at 9:00 am Leave a comment

Apple Pay is U Pay When It Comes To Fraud

This morning’s top headline in the WSJ is sure to get some attention: It breathlessly announces that Apple Pay “Is beset by low-Tech Fraudsters” It goes onto report news that I have seen floating around the blogosphere for the last few days, mainly that fraudsters are able to use old-fashioned low tech techniques,like using stolen credit cards,   to sign-up for Apple Pay and make illegal credit card purchases.

In truth this news should surprise no one.  What bemused me about the headline is that if your credit union has  signed up to make  Apple Pay available  for your members-and if you haven’t you should give it serious consideration-remember that it is your credit union that it on the hook for “Apple’s” fraudster problem.

For all the frenzy surrounding it, Apple Pay is nothing more than a way of allowing consumers to make purchases without having to go through the hassle of taking their plastic out of their wallets. If your wallet is like mine this is a big deal.   Credit unions and banks  are signing up because they are correctly assuming that Apple has the ability to make mobile purchases as common as a song download. But this is by no means a win-win.  Apple is taking a slice out of every transaction and your credit union not Apple is on the hook for the type of fraud that the Journal is writing about. If your contract with Apple is  anything like the information that I have seen it makes it quite clear that the company  is doing nothing more or less than providing a payments platform.  It has no way of knowing whether or not a consumer is an authorized user.  That is the issuer’s job.

Also contrary to the impression you may get from reading the headlines there haven’t been any reports yet of hackers breaking into Apple’s system  and manipulating it to approve fraudulent purchases.  If and when this does happen than Apple should  have to shoulder some of the liability but until that happens it’s your credit union that is on the hook for that fraudulent transaction to the same extent it is on the hook today for any other unauthorized credit or debit transaction.

Electronic wallet platforms actually highlight the need for basic fraud prevention.  Instead of simply allowing your members to sign-up by taking a picture of their card as I did the other day  with a card issuing bank,  you could require a member to call a number to activate the account or type in additional information.   In addition Apple Pay makes stolen financial information that much more valuable.  The simpler it is for crooks to use stolen credit cards the more cost-effective it may be for your credit union to issue new cards in response to major breaches.

And remember as a faithful reader of this blog likes to point out Apple is not the only electronic wallet in town.  Credit unions have developed CU Wallet.  Perhaps as people get user to using their phones for payments they will be more receptive to using different platforms that don’t cut into your bottom line.

Here is a link to a related story

http://www.cnbc.com/id/102483300

 

High noon for credit card Surcharges

Do laws that ban merchants from imposing surcharges on credit card transactions while authorizing merchants to offer cash discounts for the same transactions violate the First Amendment? That was the question being mulled over by the Court Of Appeals for the Second Circuit yesterday in Expressions Hair Design v. Schneiderman,   The case involves an appeal of an earlier ruling that struck down as unconstitutional New York’s General Business Law Section 518 which bans credit card surcharges. The Association filed an amicus brief in support of the law. Also yesterday our friends at CUNA submitted a brief in a similar lawsuit challenging a Florida surcharge ban on similar grounds (Dana’s Railroad Supply v. Bondi)

March 6, 2015 at 9:23 am Leave a comment


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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