A federal judge in New York has ruled that state's ban onretailers surcharging credit card purchases isunconstitutional.

U.S. District Court Judge Jed Rakoff, serving in the SouthernDistrict of New York, ruled Thursday in favor of five retail firmswhich had challenged New York's ban in Section 518 of the New YorkGeneral Business Law.

The retailers had claimed that not being able to tell consumersthat they were surcharging transactions conducted with a creditcard, in order to recoup card interchange fees, effectivelyviolated their First Amendment rights.

The law “perpetuates consumer confusion by preventing sellersfrom using the most effective means at their disposal to educateconsumers about the true costs of credit card usage,” Rakoff wrotein a 35-page decision.

“Even beyond the informational content of surcharges, sellers'inability to effectively inform consumers of the true costs ofcredit has the effect of artificially subsidizing credit at theexpense of cash, increasing overall credit card usage and consumerdebt,” he added.

The decision has potentially far-reaching implications since thesettlement of the last major anti-trust case between retailers andmerchants allows merchants to surcharge card transactions, provided theyduly inform consumers that they are doing so.

Market experts have thought it unlikely many retailers wouldsurcharge on account of competition with other retailers who mightnot surcharge and because 11 states, including New York, ban the surcharging.

Although Rakoff's opinion only addresses New York's lawdirectly, media reports quote retailer lawyers as expressinginterest in challenging similar bans in other states.