High Court Orders Closer Look at New York Credit Card Fee Law
03/31/17—The U.S. Supreme Court held that a New York law that prohibits merchants from charging customers a credit card fee—also known as a “swipe fee”—may violate the First Amendment.
The Supreme Court has ordered a lower court to take a second look at the law.
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 merchants from describing the difference in the price as a “credit card surcharge.” They must instead call the difference a “cash discount.”
For example, assume a merchant would like to charge $10.00 for a product, but if a customer pays with a credit card, the merchant would charge $10.30. It is permissible for the merchant to say that the product’s price is $10.30 but that there is a 30¢ discount if the customer pays by cash. It is not permissible to say that the product’s price is $10.00 but there is a 30¢ 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.
The case is Expressions Hair Design v. Schneiderman, No. 15-1391, in the Supreme Court of the United States.