Across the United States, retail sale prices inform consumers about merchandise’s monetary value. Most Americans will see a store product’s sales tag amount, ready their wallet at the cash register and consider that price as a factor in their choice of payment method.
Pew Research Center shows nearly six out of ten, roughly 58 percent of adults report having credit card bills as part of their regular expenses. Yet, a New York statute bans sellers from announcing credit card surcharge prices, stating fines and jail time as legal penalties. Some retailers see this as their truthful commercial speech, protected by the First Amendment, violated. As the law allows for original price sale inflation and a discount amount for cash purchases via price tag or word of mouth, it denies sellers the right to place on a price tag or say—surcharge— to inform customers about credit card swipe fees (Volokh).
On October 3, 2013, five retailers brought suit against New York State’s Attorney General and District Attorneys from New York, Kings and Broome Counties questioning the constitutionality of New York General Business Law section 518. The United States Court for the Southern District of New York originally presided over the case noting the statute surfaced after the lapse in Congress’s 1976 no-surcharge amendment to the Truth in Lending Act, which echoes section 518 saying, “[n]o seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means” (EXPRESSIONS HAIR DESIGN V SCNEIDERMAN, 975 F. Supp. 2d 430 U.S. Dist. 2013).
The court also said the credit card industry started pushing for state-level no-surcharge laws— again meaning the prohibition of sellers saying or posting the term surcharge for consumer information, not preventing them from obtaining credit card swipe charges via a cash discount scheme—creating laws in ten states similar to New York’s section 518 (Id. at 7). Further, the court points out how credit card companies decided to include contractual no-surcharge provisions in their agreements with retailers. It noted that Visa and MasterCard’s actions in recently dropping these contractual provisions led to the state no-surcharge law’s renewed importance (Id. at 8).
Why would New York retailers not want to charge higher prices for credit card transactions when they are paying a percentage for credit card swipe fees? They can and still do, but not through surcharges as section 518 holds: “No 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” (N.Y. Gen. Bus. Law § 518). Retailers are essentially left with two options—charge the same price for cash and credit transaction payments or separate prices for cash and credit customers thus describing the difference as a “cash discount” as opposed to a “credit card surcharge” (Salzman, Pacific Legal Blog).
The district court expressed the frustration retailers faced (Id. at 8). It’s case facts show how four of the five retailers in the case charged the same price for all transactions including credit cards for fear of violating the statute. It stated only Expressions Hair Design placed a counter sign notifying its customers of a three percent charge for credit card transactions due to high swipe 3 fee charges by credit card companies. But Expressions even erred on the more cautious side removing its sign and watching its language when a customer who was a lawyer reminded the salon of New York’s no-surcharge law.
In the end, the district court ruled section 518 was unconstitutional. It applied the four-part test established in Central Hudson Gas & Electric Corp. v. Public Service Commission saying the statute deserved “heightened judicial scrutiny” due to the law’s disclosure requirement and outright prohibition on speech (Id. at 12). To meet the test, the district confirmed three test reasons—(1) the retailers’ restricted speech concerned lawful conduct and was not misleading (Id. at 13), (2) the statute does not “directly advance any interest” protecting customers from fraud (Id. at 13), (3) the statute is “far broader than necessary” to prevent fraud (Id. at 14)
However on September 29, 2015, the United States Court of Appeals for the Second Circuit held section 518 did not violate First Amendment—speech. It said the law “regulated only conduct” in that the law “simply prohibits imposing credit-card surcharges,” not “referring to them” or “engaging in advocacy related to them” (EXPRESSIONS HAIR DESIGN V SCNEIDERMAN, 808 F. 3d 118 U.S. App. 2015). The appellate court did bring up United States v. O’Brien. It concluded, however, that the plaintiffs referenced section 518 as regulating exclusively speech, whereby questioning whether the regulated conduct was “inherently expressive” implicating First Amendment protection fell on deaf ears.
Soon after, the United States Supreme Court granted certiorari to review the case. How it will rule as to “[w]hether state no-surcharge laws unconstitutionally restrict speech conveying price information (as the Eleventh Circuit has held), or regulate economic conduct (as the Second and Fifth Circuits have held)” is up for debate (SCOTUSblog).
A time existed when commercial speech received no protection under the First Amendment. Yet, the United States Supreme Court’s attitude towards this began shifting in the 1960s to the 70s seen in the Court’s cases—New York Times Co. v. Sullivan where it held paid advertisement had First Amendment protection despite publication for profit and Bigelow v. Virginia where it ruled Virginia could not criminalize New York abortion advertisements in its state newspapers paving 4 the way for Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., a 1976 case where the Court held the First Amendment affords some protection for commercial speech when it struck down a Virginia law banning pharmacists from advertising prescription drug prices, “truthful information” solely about lawful activity (Sukhatme, Harvard Law).
More recently, the Eleventh Circuit and Eastern District of California heard cases on the constitutionality of state laws prohibiting credit card surcharges holding similarly to the district court in Expressions Hair Design v. Scneiderman.
In November 2015, the Eleventh Circuit held a Florida statute “targeted expression alone,” and that “there is no real-world difference between a surcharge and a discount” meaning the law violated retailers’ commercial free speech in defining price differences between credit and cash sales (DANA’S R.R. SUPPLY V ATTORNEY GENERAL, 807 F.3d 1235 11th Cir. 2015). In March 2015, the Eastern District of California ruled similarly on California’s law. (ITALIAN COLORS REST V HARRIS, 99 F. Supp. 3d 1199 E.D. Cal. 2015).
The Court’s cases have cemented its commitment in granting commercial speech First Amendment protection according to legal enthusiasts, such as Micah L. Berman, who have emphasized the Court’s growing interest in commercial speech’s evolution.
Berman, an assistant professor of Public Health and Law at Moritz College of Law, sums up and interprets what Mermin and Graff write in their work titled The First Amendment and Public Health that the Court’s “commercial speech doctrine is deemed ‘an amalgam of strict scrutiny and intermediate scrutiny,’ leaning ever further in the direction of strict scrutiny” (Berman, The Georgetown Law Journal). He goes further to state that many believe the Court will soon grant full protection to commercial speech, noting a majority of the Court “subscribes to the view” Justice Stevens compiled in Rubin v. Coors Brewing Co—law that deprives information from the public for its own good offends an “informed citizenry,” a primary goal of the Free Speech Clause, violating the First Amendment (Berman).
This case not only has the potential to promote consumer pricing transparency, but it also can cause the “fall in credit card swipe fees” possibly “saving retailers millions” as many economists have predicted (Jenkins and Brooks, Sedgwick LLP). The Supreme Court has the ball in its court to determine the fate of retail and how consumers can be made aware of products they purchase. Because the Court has upheld truthful information flow to inform the public time and again, New York can seemingly look forward to a tough case to win.
Berman, Micah L. “Manipulating Marketing and the First Amendment.” The Georgetown Law Journal. Web. 1 Nov. 2016.
Dana’s R.R. Supply v. Attorney General, 809 F.3d 1282, 2016 U.S. App. LEXIS 1190 (11th Cir., 2016)
Expressions Hair Design v. Scneiderman, 975 F. Supp. 2d 430, 2013 U.S. Dist. LEXIS 143415 (S. Dist., N.Y., 2015)
Expressions Hair Design v. Scneiderman, 808 F. 3d 118, 2015 U.S. App. LEXIS 21521 (2d Cir., 2015)
Italian Colors Rest v. Harris, 99 F. Supp. 3d 1199, 2015 E.D. LEAGLE (2015)
Jenkins, Kirk and Meegan Brooks. “Justices Eye Credit Card Surcharge Laws and Free Speech.” LAW360. Web. 1 Nov. 2016.
N.Y. General Business Law § 518 (McKinney 1996)
Salzman, Larry. “Defending the free speech rights of retailers.” Pacific Legal. 22 Nov. 2016. Web. 1 Nov. 2016.
Sukhatme, Neel. “Making Sense of Commercial Speech: A Theoretical Framework and a Case Study in Food and Drug Law.” Harvard Law School. 22 April 2005. Web. 1 Nov. 2016.
Volokh, Eugene. “Supreme Court’s new First Amendment price advertising case – can allow ‘cash discounts’ but forbid ‘credit card surcharges’?.” Washington Post. Washington Post, 29 Sept. 2016. Web. 2 Dec. 2016.
“What Americans Pay For – And How (III. Consumer Credit).” Pew Research Center Social Trends. Pew Research Center, 7 Feb. 2007. Web. 1 Nov. 2016.