On September 29, the United States Supreme Court agreed to hear the appeal of a case that retail merchants filed against the State of New York and City of New York challenging the constitutionality of a state law prohibiting merchants from assessing surcharges against customers who make purchases using a credit card. The challenged law states that “[n]o 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.”
The United States Court of Appeals for the Second Circuit had previously ruled against the merchants. The Second Circuit held that the New York state law does not violate the merchants’ First Amendment free speech rights because the statute regulates a merchant’s conduct, not the merchant’s speech. The Second Circuit also held that the state law does not violate the merchants’ right to due process because the law clearly and unambiguously identifies to a merchant the conduct deemed to be unlawful.
The merchants argued that the state law violates their free speech rights because they want to charge customers using credit cards a three percent surcharge and display a sign that characterizes “the price difference as a 3% credit‐card surcharge on top of the listed cash price without displaying the total credit‐card price as a dollar figure.” In holding that the state law does not violate the merchants’ free speech rights, the Second Circuit emphasized that the language of the state law is virtually identical to the language of a prior federal law that was not renewed after it expired by its own terms in the 1980s, that the nonrenewal of the federal law led New York and other states to pass their own state laws regulating surcharges, that the prior federal law was never deemed unconstitutional, and that the prior federal law regulated conduct and not speech.
The Second Circuit added that the state law is not void for vagueness, and therefore does not infringe upon the merchants’ due process rights, because the state law does not either (1) fail “to provide people of ordinary intelligence a reasonable opportunity to understand what conduct it prohibits,” or (2) lack “explicit standards for those who apply” the law.
Although many agreements between credit card issuers and merchants prohibit the merchant from imposing surcharges on customers, the Supreme Court’s decision may affect the constitutionality of state laws beyond New York concerning credit card surcharges. These state laws will be implicated in the absence of an agreement prohibiting surcharges between the issuer and merchant. Laws prohibiting surcharges are in place in Puerto Rico and California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Depending on how the Supreme Court rules, these states may revisit their laws concerning surcharges. Minnesota allows, but restricts, surcharges. Georgia allows for the collection of “convenience fees” from any person electing to pay by credit card with respect to certain transactions (industrial loans, certain retail installment and home solicitation sales contracts, and certain motor vehicle and insurance premium finance agreements). The states of California, Colorado, Connecticut, Maryland, Massachusetts, Nevada, Oklahoma, Washington, Wisconsin, and Wyoming allow merchants to provide “discounts” to customers paying by cash, and the Second Circuit implied that allowing discounts to cash–paying customers is acceptable in the states that allow such discounts.
We will keep you updated on this case and its effect on state laws concerning surcharges. The case is Expressions Hair Design et al. v. Schneiderman et al., Supreme Court case number 15-1391.