New Yorkers traveling out of state may have experienced retailers offering higher prices for transactions paid by credit cards rather than cash or checks. New York bans the practice, so it’s much more common to see merchants declining credit-card transactions for purchases under $10. However, credit-card surcharges may be coming to New York thanks in part to a U.S. Supreme Court case characterizing the state’s ban as free speech under the First Amendment.
Here’s why the case is important to debtors: In states that don’t ban credit-card surcharges, it can be a dilemma for consumers who are trying to manage their expenses. Carrying cash can be inconvenient—or consumers may not have enough on them—but paying extra to swipe a credit card is wasteful. The problem for merchants is that it costs them money to accept credit cards, so they have an incentive to encourage customers to pay in cash. Thus, they add surcharges on to the cash price. These charges cover their costs of accepting credit cards, saving them from raising prices across the board to all customers or products.
Back in 1984, New York State passed New York General Business Law §518 (called “§518”) to prevent merchants from charging customers surcharges for using credit cards instead of cash, checks, or other payment mechanisms. The law essentially forces merchants to eat the costs of accepting credit cards, and it meshes with the practice among credit-card companies of including non-surcharge clauses in their agreements with merchants. Merchants are getting sick of these clauses, and the state ban, so they’re challenging the credit-card companies under antitrust laws and suing the state over the ban, arguing that §518 violates their First Amendment right to free speech, i.e. the right to communicate their prices to consumers. The federal district court ruled in favor of the merchants, but the U.S. Court of Appeals for the Second Circuit vacated the judgment and dismissed the case. The U.S. Supreme Court overturned the Second Circuit ruling, holding that the §518 regulates speech and remanding the case to the Second Circuit.
In its opinion, the Court distinguished regulating the price a merchant can charge by law from how it advertises its prices, concluding, contrary to the Second Circuit, that §518 regulates price displays and not amounts. The Court then held that because §518 prohibits the type of pricing practice the merchants wished to use, it wasn’t unconstitutionally vague.
Expressions Hair Design, et al. v. Schneiderman can be found here (pdf).
It’s not the weightiest of First Amendment cases, but its ultimate outcome might affect how much money New Yorkers charge on their credit cards if the Second Circuit sides with the merchants. Alternatively, many New Yorkers may shift to cash for smaller transactions, which would save them money. If you are finding it difficult to pay large credit card bills, then talking to an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
