Credit Card Merchant Fee Dispute

by Raymond Pucci 0

What’s in a word? A lot. At least that’s the crux of a case currently before the U.S. Supreme Court. According to the following report, the case pits a group of merchants vs. New York State, over the use of the word “surcharge.” At issue is freedom of speech related to how merchants choose to describe the higher fee they charge to offset a credit card’s payment transaction swipe fee.

If you pay a different price for a haircut using a credit card rather than cash, what is that price called? It may seem like splitting hairs, but it’s an important free speech matter in front of the Supreme Court on Tuesday.

The commercial speech case of Expressions Hair Design v. Schneiderman hasn’t gotten a lot of headlines, but it has drawn the attention of an eclectic group of scholars and experts debating the difference between two words.

The case involves the constitutionality of laws in New York and nine other states that allow merchants to charge higher prices to customers who pay with a credit card rather than with cash. The merchants do so to recoup money paid to credit card companies who charge swipe fees for a credit-card transaction.

Merchants such as Expressions are barred from using the word “surcharge” when informing customers about the price difference. Instead, the word “discount” must be used in New York when referring to a cash payment. And under New York law, merchants who use the word “surcharge” in these scenarios face a fine and up to one year in jail for their choice of nouns. Joining Expressions in the case are other merchants, including Brooklyn Farmacy & Soda Fountain Company, Five Point Academy and

The question in front of the Court is this: “Do state no-surcharge laws unconstitutionally restrict speech conveying price information or do they regulate economic conduct?” The Court considered the case in private conference on September 26 and granted it for arguments just three days later. Undoubtedly helping the case get its court date were two other federal court rulings on the same matter.

The Expressions ruling was made by the Second Circuit Appeals Court. A district court had ruled in favor of Expressions, which wanted to use the word “surcharge” posted on a sign as a more effective way of getting customers to pay cash. The Second Circuit Appeals Court overturned the lower court ruling, saying the state law regulated prices, and not speech, and it wasn’t subject to a higher level of legal scrutiny required in free speech cases.

Call it what you will—surcharge, discount, payment card transaction fee—but this is a cost of doing business for merchants, and the amount should be disclosed to their customers. Then let the customer decide their choice of payment. Don’t some gas stations keep it simple and transparent by listing the two prices (credit and cash) side-by-side at the pump? Different merchants have their own display methods and simple signage may not be workable. But try this—just disclose both prices and the descriptive words will not matter.

Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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