Credit Cards

In a temporary victory for New York merchants over credit card companies, the U.S. Supreme Court ruled Wednesday that a state law preventing retailers from telling shoppers they are imposing a “surcharge” on credit card purchases amounts to a speech regulation that could be unconstitutional.

Chief Justice John Roberts Jr., writing for a unanimous court, said the New York law was not just a commercial regulation but a speech regulation. “What the law does regulate is how sellers may communicate their prices,” Roberts wrote. “In regulating the communication of prices rather than prices themselves, [the law] regulates speech.”

But the high court remanded the case to the U.S. Court of Appeals for the Second Circuit with instructions to examine the law in that light. The Second Circuit ruling had upheld the state law without addressing the First Amendment speech issue raised by merchants. Roberts added, however, that the law was not vague—an assessment that will affect how the Second Circuit ultimately rules on the First Amendment point.

The case Expressions Hair Design v. Schneiderman came to the court as a test of whether New York can dictate what merchants say to their customers about the different prices they charge for credit card and cash payments. Ten other states, including California, Connecticut, Florida, Massachusetts and Texas, have similar laws that prohibit merchants from imposing surcharges to cover the “swipe fee” they pay credit-card companies, laws which in some cases have been interpreted to prevent merchants from using the word “surcharge.”

The credit-card industry has lobbied for such laws since the 1980s, fearing that describing the higher price as a “surcharge” would discourage shoppers from using credit cards.  But merchants have fought back, claiming that the laws keep them from making it clear that credit card purchases are more costly than cash and cut into their profits.

“Rather than increase prices across the board to absorb those costs, the merchants want to pass the fees along only to their customers who choose to use credit cards,” Roberts wrote. “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.”

Deepak Gupta of Gupta Wessler argued on behalf of a group of New York challenging the law, while deputy New York solicitor general Steven Wu defended it as a “pricing practice” without free speech implications.

Though the outcome was unanimous, Justices Sonia Sotomayor, joined by Justice Samuel Alito Jr., wrote in a concurrence that the entire case should have been remanded, rather than ruling on only one aspect. “The court addresses only one part of one half of petitioners’ First Amendment challenge to the New York statute at issue here,” Sotomayor wrote. “This quarter-loaf outcome is worse than none.”