Supreme Court rules merchants may pursue free-speech challenge to disclose credit card fees

Supreme Court rules merchants may pursue free-speech challenge to disclose credit card fees
This Feb. 14, 2017, file photo shows the Supreme Court in Washington. (J. Scott Applewhite / AP)

Merchants may soon have the right to tell customers they will pay a surcharge if they use a credit card rather than pay with cash.

The Supreme Court cast doubt Wednesday on laws in California, New York, Florida and seven other states that make it illegal for sellers to "impose a surcharge" on credit card sales. These long-standing laws, strongly backed by the credit card industry, have been interpreted to mean retailers may not advertise or disclose that the price includes a 2% to 3% surcharge for using a credit or debit card.


But in an unanimous decision, the justices said these laws "regulate speech" and may be challenged as violations of the 1st Amendment.

Chief Justice John G. Roberts Jr. said many merchants want to tell their customers about these fees and perhaps encourage more of them to get a discount by paying cash.

"Those fees add up. Rather than increase prices across the board to absorb the costs, merchants want to pass the fees along only to their customers who choose to use credit cards," he said. "They also want to make clear that they are not the bad guys -- that the credit card companies, not the merchants, are responsible for the higher prices."

But the ruling Wednesday was only a partial victory for the five New York businesses, including a hair salon and an ice cream parlor in Brooklyn, that sued to challenge the ban on advertising or disclosing "surcharges" for using credit cards.

The U.S. 2nd Circuit Court of Appeals in New York had upheld the law on the grounds it was a price regulation, not a speech restriction.

Roberts and the high court disagreed. "What the law does is regulate how sellers may communicate their prices," he said. "A merchant who wants to charge $10 for cash and $10.30 for credit may not convey that price any way he pleases. He is not free to say '$10, with a 3% credit card surcharge' or '$10, plus $.30 for credit.'"

But the justices stopped short of striking down the laws. Instead they sent the case back to a New York court to decide whether this "speech regulation" could be justified. Sometimes, laws may regulate the words of commercial transactions to prevent buyers from being fooled or confused.

The Retail Industry Leaders Assn. applauded the ruling in the case, Expression Hair Design vs. Schneiderman, as "opening the door to more transparent communication" about card fees. It "affirms the right of retailers to communicate honestly with their customers about the true cost of credit cards," said Deborah White, the group's general counsel.

In recent decades, the credit card companies have included provisions in their contracts that prohibited retailers from imposing and disclosing the swipe fees. But merchants have challenged those restrictions on antitrust grounds.

That in turn spawned new legal challenges against the state laws which forbid sellers from disclosing these surcharges. The seven other states with similar laws are Colorado, Connecticut, Kansas, Maine, Massachusetts, Oklahoma and Texas.

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