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Conflicting rulings may send surcharge debate to Supreme Court

Jay MacDonald

Is the surcharge we pay for paying with plastic a form of merchant free speech protected by the First Amendment or just a sneaky way of tricking us into springing for the merchant’s card transaction “swipe” fee?

That credit card conundrum, which has slowly been working its way through the federal appeals process in the 11 states that have banned card surcharges, took another about-face last week in Florida when the 11th U.S. Circuit Court of Appeals ruled 2-1 against the Sunshine State’s ban on card surcharges.

State laws typically allow merchants to offer a discount for cash however, which is where this whole kerfuffle gets a little overbaked.

Editors’ note: CreditCards.com is researching the use of surcharges on credit cards. If you have been asked to pay a surcharge, please tell us about your experience on this confidential form, or email us at editors@creditcards.com.

In the court’s 30-page ruling, Judge Gerald Tjoflat explained that a surcharge for plastic should no more be banned than a discount for cash.

“(‘They’re) nothing more than two sides of the same coin; a surcharge is simply a ‘negative’ discount, and a discount is a ‘negative’ surcharge,” he wrote. “As a result, a merchant who offers the same product at two prices … is allowed to offer a discount for cash while a simple slip of the tongue calling the same price difference a surcharge runs the risk of being fined and imprisoned.”

And I see his point. Imagine the chaos that would ensue in cocktail lounges alone if customers were told that the extra two bucks on their card tab was due to a cash discount!

The ruling comes just weeks after the 2nd U.S. Court of Appeals in New York ruled 3-0 to revive the state’s ban on card surcharges, tossing out a 2013 lower court ruling that found the state’s ban violates merchants’ free speech and due process under the Constitution.

Writing for the panel, Circuit Judge Debra Ann Livingston said the surcharge issue is not about free speech and due process, but instead pricing conduct. The panel found that the words in question are merely prices, not speech as defined by the First Amendment. Other price controls, such as banning sale prices on cigarettes, have never been challenged on First Amendment grounds.

“Consumers react negatively to credit-card surcharges not because surcharges ‘communicate’ any particular ‘message,’ but because consumers dislike being charged extra,” the panel wrote. “Nothing about the consumer’s reaction in either situation turns on any words uttered by the seller.”

Ten other states have similar bans: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Minnesota, Oklahoma, and Texas. California’s Attorney General has ceased enforcing its surcharge ban, however, pending clarity.

Legal experts like Sarah Jane Hughes, a professor at the University of Indiana’s Maurer School of Law, know where this fight is headed.

“This will probably end up at the Supreme Court because you’re going to have a split, in all likelihood, and you’re going to have constitutional issues,” she predicts.

But Deborah White, president of the Retail Litigation Center, which has taken no position in the fight, says surcharges aren’t really the issue at all.

“Bottom line is that neither consumers nor retailers should be paying for the banks’ and cards’ anti-competitive behavior in setting interchange fees, so the bans are beside the point,” she points out in Law 360. “Either Congress or the courts should put an end to the anti-competitive way in which the banks and cards set interchange fees — surcharging prohibitions are not the answer, but neither is lifting them.”

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