POLITICS

Supreme Court Weighs If Some Credit Card 'Swipe' Fees Violate The 1st Amendment

A group of New York merchants is challenging a state law it says misleads consumers.

01/11/2017 07:28 pm ET

WASHINGTON ― The last thing the U.S. Supreme Court wants is to regulate how the corner bagel shop does business.

The justices on Tuesday puzzled over a tricky case from New York that challenges a statute imposing criminal penalties on businesses that charge a slightly higher price to customers who choose to pay with credit cards rather than with cash or other means.

There’s nothing wrong with doing this. Small businesses all over the country institute similar dual-pricing systems so as to alert buyers that paying with cash is cheaper.

But a group of merchants from New York insists that the state is taking things up a notch: Under state law, the merchants contend, New York Attorney General Eric Schneiderman is effectively prohibiting them from even telling customers that they’ll incur a higher fee if they pay with plastic.

This, they claim, is a regulation of speech that violates the First Amendment because any mention of a “surcharge” for using a credit card could land them in trouble ― but offering a lower price for cash customers would not. And it’s dishonest because they’d like to be truthful with their customers. And now they want the Supreme Court to strike down the New York law as unconstitutional.

The justices seemed perplexed by the argument.

“What speech precisely do you think is being restricted?” asked Justice Elena Kagan, by far the most active questioner in the hearing for Expressions Hair Design v. Schneiderman. “This statute is not written in terms of speech,” she later added. “It’s written in terms of imposing a surcharge.”

“The statute simply says,” Justice Sonia Sotomayor said, quoting from the law, “’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.’”

“To me, it’s very simple: One price for everything,” she added.

Deepak Gupta, who represents the merchants challenging the New York law, conceded during an exchange with Justice Stephen Breyer that the statute “doesn’t scream First Amendment.” But he said that how the state enforces it on the ground results in businesses not being allowed to communicate prices truthfully to consumers. 

To me, it’s very simple: One price for everything. Justice Sonia Sotomayor

But Breyer warned that by importing First Amendment principles into an area where state agencies have broad leeway to set rules, the Supreme Court would be “diving headlong into an area called price regulation.”

“It is a form of price regulation, and price regulation goes on all over the place in regulatory agencies,” Breyer said. “And so the word that I fear begins with an L and ends with an R; it’s called Lochner. And there we go.”

Lochner v. New York is a case that kicked off a dark era when the Supreme Court was all too willing to strike down laws regulating business conduct. The court has since overruled Lochner, but Breyer seemed concerned about using the First Amendment as a “tool” to go back to that time, when even minimum wage and child labor laws were deemed unconstitutional.

If the court doesn’t stay away from Lochner, Breyer warned, “we are going to discover all kinds of price regulation all over the place that suffers to greater or lesser degrees from this kind of problem, and you’ll have judges all over the country substituting for regulators and others in trying to regulate.”

Justice Samuel Alito said that when he first read the New York law he was confused by what it meant and suggested that the state’s highest court may be better positioned to say what it means.

“I feel somewhat uncomfortable about ruling on the constitutionality of this statute without knowing how the ... New York Court of Appeals would interpret the statute,” Alito said. The Supreme Court likes to defer to state courts on how to interpret their own laws.

To be sure, Schneiderman hasn’t exactly played bad cop with local merchants under this law as he has with, say, President-elect Donald Trump and the handling of his foundation. His representative before the high court, Steven Wu, told the justices the law “refers only to a pricing practice and not to any speech.”

But Gupta said New York can’t “run away from the most recent enforcement history” and noted that in 2008 and 2009, up to 50 merchants were prosecuted after they told investigators posing as customers the truthful price of their wares.

“There were sweeps,” he said.

The Supreme Court is expected to rule in Expressions Hair Design v. Schneiderman before the end of June.

Suggest a correction
Comments

CONVERSATIONS