Federal Judge Tosses New York Ban on Card Surcharging
New York’s ban on retailers charging a surcharge for credit card purchases was ruled unconstitutional Oct. 3 by a federal court judge.
U.S. District Court Judge Jed Rakoff, serving in the Southern District of New York, ruled in favor of five retail firms that challenged the ban.
Retailer plaintiffs claimed their First Amendment rights were violated in the suit, because the ban prevented retailers from telling customers they were recovering card interchange fees with a surcharge. However, retailers can price interchange fees into the price of a product and provide a discount for cash purchases, which complies with the ban.
“[T]his virtually incomprehensible distinction between what a vendor can or cannot tell its customers offends the First Amendment,” Rakoff wrote in his opinion, “and renders section 518 unconstitutional.”
The judge also opined the law perpetuates consumer confusion by preventing sellers from using the most effective means at their disposal to educate consumers about the true costs of credit-card usage.
“Even beyond the informational content of surcharges, sellers’ inability to effectively inform consumers of the true costs of credit has the effect of artificially subsidizing credit at the expense of cash, increasing overall credit-card usage and consumer debt,” he added.
Violating the ban could subject retailers to a one-year prison sentence and $500 fine. Rakoff issued a preliminary injunction blocking the law’s enforcement while the case is pending.
New York State Attorney General Eric Schneiderman and Manhattan District Attorney Cyrus Vance, among others, have argued that the law protected shoppers by enabling them to rely on advertised prices rather than be surprised at checkout by unexpected surcharges. The two offices did not respond to comments on the decision.
Rakoff’s opinion has potentially far reaching implications. The settlement of the last major anti-trust case between retailers and merchants allowed merchants to surcharge card transactions, provided they inform consumers first.
Although Rakoff’s opinion only addressed New York’s law directly, media reports quoted retailer lawyers saying they may challenge similar bans in other states.