On March 29, 2017, the United States Supreme Court held that a New York law prohibiting sellers from “impos[ing] a surcharge on a holder who elects to use a credit card” was a regulation of speech—not conduct—but the Court remanded the case to the Second Circuit to determine whether the speech regulation survives First Amendment scrutiny.
Regulation of credit card “surcharges” and cash “discounts” dates back to the 1970s and 1980s. In 1974, Congress amended the Truth in Lending Act (TILA) to, inter alia, “prohibit card issuers from contractually preventing merchants from giving discounts to customers who paid in cash.” In 1976, Congress further added to TILA a ban on card surcharges. However, the existence of opposing bans demanded a method for distinguishing between them. By 1981, Congress had defined “discount” as “a reduction made from the regular price,” “surcharge” as “any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means,” and “regular price” as (1) the “tagged or posted” price when only a single price is posted, or (2) the price charged to card users when either no price is posted or two prices (both a cash price and a credit card price) are posted. Despite the complicated nature of this statutory framework, the bottom line was simple: “a merchant could violate the surcharge ban only by posting a single price and charging credit card users more than that posted price.”
In 1984 the federal ban on card surcharges lapsed, but similar—and perhaps identical—bans continued to exist in other forms. For example, credit card companies often included surcharge prohibitions in their contracts with merchants. And at the same time, many states adopted surcharge bans. New York was one such state: it “adopted the operative language of the federal ban verbatim,” except that—critically—it failed to define “surcharge.” For many years, the existence of the credit card companies’ contractual surcharge prohibitions rendered the New York law superfluous—a belt on top of suspenders. Yet recent merchant-initiated antitrust challenges to the contractual provisions brought new importance and scrutiny to the state bans.
Chief Justice Roberts, writing for a majority of five, concluded that the New York law is a regulation of the manner in which merchants convey their prices rather than a regulation of just the prices themselves. Somewhat simplifying the matter, petitioners (five New York businesses including a hair salon and a combination pharmacy and soda fountain) “expressly identified only one pricing scheme that they s[ought] to employ: posting a cash price and an additional credit card surcharge, expressed either as a percentage surcharge or a ‘dollars-and-cents’ additional amount.” Meanwhile, the absence of a “surcharge” definition akin to the one in the expired federal law left the statute open to a wide variety of interpretations, yet this wrinkle was smoothed over too. Rather than itself interpret the statute, the Court deferred to the Second Circuit’s interpretation—namely, that “the sticker price is the ‘regular’ price, so sellers may not charge credit-card customers an additional amount above the sticker price that is not also charged to cash customers.” Once the Court adopted these assumptions about, first, the scope of the challenge and, second, the scope of the statute, the Court easily ascertained that the law regulates speech. After all, “[t]he law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer”; rather, “[w]hat the law . . . regulate[s] is how sellers may communicate their prices.” With the question of whether the law was a speech regulation now settled, the Court remanded the case to the Second Circuit for a determination as to whether the law was a permissible speech regulation—a question the Second Circuit had at first dodged.
Justice Breyer and Justice Sotomayor, joined by Justice Alito, each concurred only in the judgment. Justice Breyer emphasized that this case illustrates the folly of trying to distinguish between regulation of speech and regulation of conduct, and insisted that the inquiry should instead “simply ask whether, or how, a challenged statute, rule, or regulation affects an interest that the First Amendment protects.” Justice Sotomayor chose a different approach, criticizing the Court for affording deference to the Second Circuit’s interpretation of the statute when the Second Circuit had failed to properly employ the doctrine of constitutional avoidance. She argued that the Second Circuit should have in the first instance “certified the case to the New York Court of Appeals for a definitive interpretation of the statute,” and she encouraged the Second Circuit to use the remand as an opportunity to correct its initial failure to do so.
Because the Court remanded the case to the Second Circuit to determine whether the New York law is a permissible burden on speech, the validity of these types of laws remains an open question. In fact, on April 3, 2017 the Court remanded a Fifth Circuit case and denied cert in an Eleventh Circuit case that posed similar questions regarding, respectively, Texas’s and Florida’s surcharge laws. We will continue to monitor developments in this area of the law as they occur.
Expressions Hair Design v. Schneiderman, 581 U.S. --- (2017).