Under the first question, the Court concluded that the activity involved — imposing credit card surcharges — was not unlawful, as the statute permitted cash discounts. It found that California’s Attorney General did not articulate why the plaintiffs’ “single-sticker” pricing schemes would be misleading, pointing out that the plaintiffs were merely attempting to communicate the difference in prices as a surcharge rather than a discount. The Court recognized that while the surcharges could be deceptive if surreptitiously imposed at the point of sale, nothing in the record suggested that the plaintiffs intended to impose them that way.
Under the second question, the Court rejected the Attorney General’s argument that the surcharge ban promoted the state’s interest in protecting consumers from deceptive price increases. Conversely, it found that the statute did not promote more accurate information disclosures at the plaintiffs’ places of business. It concluded that the statute prevented the merchants from communicating to customers the cost of credit card use and why credit card customers are charged more than cash customers. The Court also stated that the numerous exemptions from the surcharge ban — including payments to utilities and courts — undermined any ameliorative effect of the statute. Finally, it found that California had other, more narrowly tailored means to prevent consumer deception. For example, the state could require merchants to disclose surcharges both before and at the point of sale, as Minnesota requires. The state could also enforce its existing laws banning unfair business practices and misleading advertising in pricing.
There are now four circuit courts, including the Ninth Circuit, that have analyzed surcharge bans under the First Amendment. The Eleventh Circuit held that Florida’s ban was unconstitutional in Dana’s R.R. Supply v. Attorney Gen., Florida, 807 F.3d 1235 (11th Cir. 2015). That decision stands after the U.S. Supreme Court declined to hear a further appeal. Following the Supreme Court’s decision in Expressions, the Second Circuit is now considering whether New York’s ban survives First Amendment scrutiny. Also due to Expressions, the Fifth Circuit must reconsider its decision in Rowell v. Pettijohn, 816 F.3d 73 (5th Cir. 2016), wherein it held that Texas’s surcharge ban did not regulate speech.
Even if state no-surcharge laws are invalidated, merchants may still be subject to limits on credit card surcharges under credit card network rules. In 2013, Mastercard and Visa loosened (but did not remove) limits on credit card surcharges as part of settling antitrust litigation over interchange fees. The Second Circuit reversed the lower court’s approval of that settlement in 2016, but the networks’ limits on surcharges remain effective. Those limits, as well as limits imposed by American Express and Discover, should be reviewed carefully to determine whether proposed surcharge practices are permissible.
In addition, Regulation Z provides that a credit card surcharge is a finance charge, and a merchant imposing a surcharge is a creditor with disclosure obligations under the Truth in Lending Act. Merchants imposing credit card surcharges must therefore consider the manner in which they will comply with those disclosure obligations.