On September 29, the United States Supreme Court agreed to hear
the appeal of a case that retail merchants filed against the State
of New York and City of New York challenging the constitutionality
of a state law prohibiting merchants from assessing surcharges
against customers who make purchases using a credit card. The
challenged law states that "[n]o 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
The United States Court of Appeals for the Second Circuit had
previously ruled against the merchants. The Second Circuit
held that the New York state law does not violate the
merchants' First Amendment free speech rights because the
statute regulates a merchant's conduct, not the merchant's
speech. The Second Circuit also held that the state law does
not violate the merchants' right to due process because the law
clearly and unambiguously identifies to a merchant the conduct
deemed to be unlawful.
The merchants argued that the state law violates their free
speech rights because they want to charge customers using credit
cards a three percent surcharge and display a sign that
characterizes "the price difference as a 3% credit‐card
surcharge on top of the listed cash price without displaying
the total credit‐card price as a dollar figure."
In holding that the state law does not violate the merchants'
free speech rights, the Second Circuit emphasized that the language
of the state law is virtually identical to the language of a prior
federal law that was not renewed after it expired by its own terms
in the 1980s, that the nonrenewal of the federal law led New York
and other states to pass their own state laws regulating
surcharges, that the prior federal law was never deemed
unconstitutional, and that the prior federal law regulated conduct
and not speech.
The Second Circuit added that the state law is not void for
vagueness, and therefore does not infringe upon the merchants'
due process rights, because the state law does not either (1) fail
"to provide people of ordinary intelligence a reasonable
opportunity to understand what conduct it prohibits," or (2)
lack "explicit standards for those who apply" the
Although many agreements between credit card issuers and
merchants prohibit the merchant from imposing surcharges on
customers, the Supreme Court's decision may affect the
constitutionality of state laws beyond New York concerning credit
card surcharges. These state laws will be implicated in the
absence of an agreement prohibiting surcharges between the issuer
and merchant. Laws prohibiting surcharges are in place in
Puerto Rico and California, Colorado, Connecticut, Florida, Kansas,
Maine, Massachusetts, New York, Oklahoma, and Texas.
Depending on how the Supreme Court rules, these states may revisit
their laws concerning surcharges. Minnesota allows, but
restricts, surcharges. Georgia allows for the collection of
"convenience fees" from any person electing to pay by
credit card with respect to certain transactions (industrial loans,
certain retail installment and home solicitation sales contracts,
and certain motor vehicle and insurance premium finance
agreements). The states of California, Colorado, Connecticut,
Maryland, Massachusetts, Nevada, Oklahoma, Washington, Wisconsin,
and Wyoming allow merchants to provide "discounts" to
customers paying by cash, and the Second Circuit implied that
allowing discounts to cash-paying customers is acceptable in the
states that allow such discounts.
We will keep you updated on this case and its effect on state
laws concerning surcharges. The case is Expressions Hair
Design et al. v. Schneiderman et al., Supreme Court case
The Troutman Sanders' Consumer Financial Services
Law Monitor blog offers timely updates regarding the financial
services industry to inform you of recent changes in the law,
upcoming regulatory deadlines and significant judicial opinions
that may impact your business. To view the blog, click
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