What the U.S. Supreme Court Did

The U.S. Supreme Court ruled last week that New York’s statutory ban on merchant’s surcharging customers who choose to pay with credit cards is a regulation of speech and is not merely a regulation of pricing conduct, as the lower court had ruled. New York’s statute, N. Y. Gen. Bus. Law Ann. §518, makes it a misdemeanor punishable by a fine or imprisonment for a merchant to “impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check or similar means.”  In Expressions Hair Design et al. v. Schneiderman, et al., the Court required the Second Circuit to consider the validity of the law under the First Amendment.  Specifically, the circuit court of appeals must now determine whether the New York law is a valid commercial speech regulation and whether the law can be upheld as a disclosure requirement.  Previously, the Second Circuit ruled that the law regulated conduct, not speech, since it required that the merchant’s prices should be the same whether a customer uses a credit card or cash.

Impact on Merchants and Payment Networks

In short, the status quo remains intact for now, in New York and in the eleven other states that regulate surcharges. The Supreme Court’s action does not immediately uphold or invalidate New York’s anti-surcharge law. Reviving the claim after it had been dismissed by the lower court, the law now must be reviewed again by the court of appeals (and potentially again after that by the Supreme Court) as to whether the law is a valid commercial regulation of speech. This review process could take a while, especially considering that one of the Supreme Court Justices recommended that the federal court of appeals ask New York’s top state court to give it an “accurate picture of how, exactly, the statute works.”

In addition to putting the New York law’s validity back into question, the decision has potential impact on similar laws in nine other states. California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, and Texas also ban surcharges.  (Minnesota does not prohibit credit card surcharges, but limits their amount and requires disclosures. The Minnesota law is not in question under this ruling. Georgia law limits convenience fees for payments by electronic means.  That particular law applies only to specified types of credit transactions and is also not at issue here.)  California and Florida’s laws have previously been ruled unconstitutional.  Since these states other than Connecticut are located within the jurisdiction of different federal appellate courts, it is possible that those state’s laws might be upheld or stricken down based on the pertinent courts’ reaching different conclusions in applying the same legal standards under which the Supreme Court has instructed the Second Circuit to consider the New York law. If the New York law is upheld when the review process is exhausted, it also possible that the legislatures in Florida and California would reinstate a surcharge prohibition law that meets the criteria under which the New York law is validated.

This case has no direct impact on fees charged by card networks and card issuers.  It might indirectly impact card usage if surcharges become permissible in the affected states, as they are now in all of the other states. Merchants considering imposing surcharges in states where the practice is not prohibited should also consider card network rules that impose limits and disclosure requirements.