Credit card surcharges and the First Amendment
Credit card surcharges are synonymous with cash discounts. However, eleven states, including Texas, prohibit passing credit card surcharges onto consumers as a way to cover the merchant fees associated with credit card payments. Bans on surcharges are not a new phenomenon in the United States, but when the federal ban expired in 1984, these bans were largely left to state legislatures.
The most recent case regarding this matter, Expressions Hair Design v. Schneiderman, was heard by the Supreme Court earlier this year and concerned New York businesses that fell under the ban’s jurisdiction.
The argument was made that banning a surcharge to cover the interchange fees when a customer opts for the use of a credit card in lieu of cash or other similar means was a violation of the First Amendment right of businesses.
While it is legal under the New York statute as well as many others to offer a cash discount, businesses are not allowed to label the transaction fee a “credit card surcharge.”
The First Amendment argument is weak. The idea that it is meant to protect consumers with transparency is suspect. Aside from refusing merchants the “right” to label a cash discount or lack thereof a particular way, very little of the legal wording of these provisions mention anything explicitly regarding free speech.
A major problem with the free speech argument is that the enforcement history concerning the charges has been ambiguous over the years. Even the aim of the statute is slightly arbitrary.
Whether these statutes imply that two prices, one for credit cards and one for cash equivalents, is prohibited or these statutes are aimed at curbing “bait-and-switch” pricing tactics is not entirely clear.
If businesses were forced to convey the reason for the credit card surcharge instead of a cash discount, it would be a way of controlling speech as well.
The reason a business wouldn’t want to convey the surcharge: to avoid the awkward conversation of why their customers suddenly have to bear the brunt on the transaction costs, which I imagine is a highly prevalent phenomenon.
Behavioral economic theories play a role in the case but are hard to quantify or find legitimate empirical evidence affirming a rejection of the ban. Overall, the argument that could potentially justify the overturn of such bans are not without merit. The surcharges could transfer more power from credit card companies to consumers.
Consumer’s sentiments could change regarding the frequent use of credit cards as well as provide consumers with more information about transactions with increased transparency. All that aside, even with commercial speech taken into account, these laws most definitely regulate conduct as opposed to speech.
In effect, this renders the First Amendment argument as an appeal that comes off as little more than grasping at straws.
Opinion columnist Nicholas Bell is an MBA graduate student and can be reached at [email protected]