Consumer Financial Services Law Blog
Dykema Gossett PLLC
Dykema Gossett PLLC

Consumer Financial Services Law Blog

Consumer Financial Services Law Blog

News and analysis regarding Consumer Financial Services litigation and regulation, and activities of the Consumer Financial Protection Bureau


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United States Supreme Court to Resolve Circuit Split Involving the Constitutionality of “No Surcharge” Laws

On September 29, 2016, the United States Supreme Court granted certiorari in the matter of Expressions Hair Design et al. v. Schneiderman, on appeal from the Second Circuit Court of Appeals, in order to resolve a circuit split involving whether state “no-surcharge” laws violate the First Amendment.  

Ten states, including California, have enacted “no surcharge” laws that prohibit merchants from imposing surcharges on consumers who elect to use credit cards in lieu of cash. (See Cal. Civ. Code § 1748.1.) However, by their terms, “no surcharge” laws allow merchants to offer “discounts”to consumers who pay in cash. Therefore, whereas a merchant is free to charge $22 to a consumer who pays in credit and $20 to a consumer to pays in cash, the “no surcharge” law requires the merchant to refrain from describing the extra $2 as a “surcharge” on the credit card-paying customer. Rather, the difference must be described as a $2 “discount” for the cash-paying customer. Because consumers are less likely to use a credit card if they perceive that they will be subject to a “penalty” for doing so, these industry-friendly laws help remove what would otherwise be a deterrent to credit card usage. 

In Schneiderman, the Supreme Court will address a direct circuit split regarding whether “no surcharge” laws impose unconstitutional restrictions on speech. In the decision below, the Second Circuit held that the “no surcharge” laws merely regulate prices, not speech, by prohibiting merchants from charging credit card users an amount above the “regular” sticker price. (Expressions Hair Design v. Schneiderman(2d. Cir. 2015) 808 F.3d 118, 131-32.) Although a merchant can simply avoid the “no surcharge” law by bringing their “regular” price in line with the price paid by credit card users, that does not mean the laws target speech. “[P]rices, (though necessarily communicated through language) are not ‘speech’ within the meaning of the First Amendment, nor are they transformed into ‘speech’ when considered in relation to one another.” (Id.) 

Multiple other circuits, including the Eleventh Circuit and the Fifth Circuit, have concluded that “no surcharge” laws directly target speech. According to those circuits, because “no surcharge” laws do not altogether ban dual pricing, the only way for them to operate is by targeting how merchants describe their dual pricing: calling it a “surcharge” is forbidden, whereas calling it a “discount” is permissible. (See Dana’s R.R. Supply v. AG (11th Cir. 2015) 807 F.3d 1235, 1245 [“The statute targets expression alone. More accurately, it should be a ‘surcharges-are-fine-just-don't-call-them-that law’”].) Since the states cannot identify a plausible “governmental interest” justifying the speech-based restrictions imposed by “no surcharge” laws, they fail to withstand constitutional scrutiny.

The Schneiderman decision will test the constitutional boundary between “speech” and “conduct,” and will ultimately determine the future of “no surcharge” laws, having implications for merchants, consumers, and the credit card industry alike.