U.S. Supreme Court Decisions
Two key things occurred in March 2017. Details are below, but, in short:
On March 27, 2017, the U.S. Supreme Court declined to hear a bid by merchants to essentially resurrect the original lawsuit settlement, which was overturned in June 2016. See below (The U.S. Surcharging Era).
On March 29, 2017, the U.S. Supreme Court remanded the Court of Appeals to analyze New York’s no surcharge law as a speech regulation and determine whether it is unconstitutional, violating the First Amendment. See second column (Evolving State Laws, section on New York).
The U.S. Surcharging Era
In the United States, surcharging was historically prohibited by the card networks, but litigation resulted in a new era.
Mastercard, Visa Lawsuit Settlement
On December 13, 2013, the U.S. District Court for the Eastern District of New York granted final approval of the interchange lawsuit settlement involving Mastercard, Visa and some banks. The lawsuit, which dates back to 2005, was initially settled in July 2012 and, as one result, Mastercard and Visa began to allow surcharging in the United States in January 2013.
On June 30, 2016, the U.S. Second Circuit Court of Appeals repealed the settlement, noting that merchants were not properly represented. One aspect of the settlement prevented merchants from initiating future litigation with the card networks; access related blog post. However, the surcharging aspect did not change since January 2013.
U.S. Supreme Court Will Not Hear Case
On March 27, 2017, the U.S. Supreme Court declined to hear a bid by merchants to essentially resurrect the original lawsuit settlement. The June 2016 ruling stands (the original settlement overturned).
New Settlement Looms
On January 24, 2019, preliminary approval of a new settlement—in excess of $6B—filed on September 18, 2018, was granted. Visit the official website for details.
About American Express
American Express ended its surcharge ban at the end of 2013; see related press release. This stemmed from a separate, but related, lawsuit. The final approval hearing occurred September 17, 2014, and, in August 2015, the court denied final approval based on procedural grounds. Visit the official website for coverage of this settlement.
Evolving State Laws
In addition to the following content, which provides more current information, a 2015 blog post addresses surcharge laws.
State laws trump any rules imposed by the card networks in relation to card acceptance. At the beginning of 2013 (when MasterCard and Visa began to allow surcharging), many states had laws that prohibited or limited surcharging: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
State Litigation & U.S. Supreme Court Petitions
New York: A group of merchants filed a lawsuit in 2013 challenging the constitutionality of the no surcharge law, claiming it interferes with a merchant’s First Amendment free speech rights. In October 2013, Judge Rakoff agreed with the merchants and ordered a preliminary injunction preventing the state from enforcing that law. The ruling was appealed. In October 2015, the U.S. Court of Appeals for the Second Circuit sided with the original law. In summary:
Single-sticker pricing must reflect the price charged to credit card users; that is, merchants cannot post a price and also relay that credit card users will be charged a higher price.
The NY law was not a First Amendment issue because the law regulates conduct versus speech.
Subsequently, the merchants petitioned the U.S. Supreme Court (Expressions Hair Design v. Schneiderman, case number 15-1391). The Supreme Court heard arguments on January 10, 2017 (see related blog post), and ruled on March 29, 2017. They:
agreed with the Court of Appeals about single-sticker pricing
disagreed with the Court of Appeals on the other aspect; they concluded the NY law does regulate speech because it regulates the communication of prices, but they stopped short of an official ruling
Regarding the second bullet point above, the Supreme Court remanded the Court of Appeals to analyze the NY law as a speech regulation and determine whether it is unconstitutional, violating the First Amendment. In December 2017, the NY merchant plaintiffs certified a question to the New York Court of Appeals to learn how they can charge more for credit card payments without violating the applicable NY law.
California: Mirroring New York, Judge England ruled in March 2015 that California’s law prohibiting surcharges is unconstitutional, and, like New York, the attorney general disagreed with the ruling and appealed. For more than two years, California was in limbo with the “no surcharge” law being unenforceable.
In January 2018, the U.S. Court of Appeals for the Ninth Circuit concluded the “no surcharge” law violates the First Amendment because it restricts how merchants can communicate prices. However, the detailed ruling only applies to the plaintiffs. As such, the California law could still be enforced under certain conditions. Read related article from The National Law Review.
Florida and Texas: Unlike New York and California, litigation initially resulted in the “no surcharge” laws being upheld. Additional litigation ensued within the states and, subsequently, the U.S. Supreme Court, whose ruling on the NY case (to remand the case back to the state level to evaluate the First Amendment aspect) sent the following two cases back to the states as well.
Rowell et al v. Pettijohn (from Texas litigation), case number 15-1455
Bondi v. Dana’s Railroad Supply (from Florida litigation), case number 15-1482
In Texas, a law took effect on September 1, 2017, that amends the Business and Commerce Code (604A) and bans surcharges on credit card payments. Similarly, a 2017 Florida statute (501.0117) also prohibits surcharges.