Surcharge Away! Judge Invalidates Surcharge Ban
by. Henry Meier
I have two thoughts this morning. First, however much the merchants are paying their lawyers, it’s worth it, and my General Tsao’s Chicken just got more expensive.
On Friday, a federal district court in Manhattan struck down New York’s law prohibiting retailers from charging surcharges on credit card purchases (see Expressions Hair Design et al v. Schneiderman, No. 13 Civ. 3775 (JSR), Oct. 3, 2013). New York is one of ten states that restrict such charges. Prior to last year, the statute wasn’t all that important because surcharge bans were included in the standard merchant contract between merchants and VISA and MasterCard. Following last year’s anti-trust settlement under which Visa and MasterCard agreed to do away with this provision, a group of retailers brought a suit claiming, among other things, that the statute violated the first amendment.
The offending statute, which has been in place since 1984, provides as follows: “No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.” – See NYS General Business Law, section 518.
According to the judge, this statute is unconstitutional and vague and keeps retailers from explaining to consumers the true costs related to a transaction. For example, the existing law already permits retailers to offer discounts for individuals who pay in cash. This is why gas station owners consistently offer lower prices for people who pay in currency as opposed to a charge card. The crux of what the judge contends is wrong with what he describes as an “Alice in Wonderland” piece of legislation is that a gasoline station owner careful or sophisticated enough to always characterize the lower prices as a discount for cash is not violating any provision of the law; but if a colleague down the street described the higher price as a credit card surcharge, he has violated the law.
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