California Payment Card Surcharge Ban Unconstitutional

A federal judge ruled that California’s new law that bans payment card surcharges was unconstitutional.

 

As reported by PYMNTS.com, the case stems from California businesses that sued the state in 2014, stating that their First Amendment rights were being violated because the law restricted commercial speech by dictating how retailers can advertise the difference of prices on cash versus card purchases when it came to adding a surcharge on credit card purchases.

 

According to a news release on the ruling, U.S. District Court Judge Morrison England found that the law "is an unconstitutional restriction on plaintiffs’ freedom of speech and is void for vagueness." The federal judge pointed to one example to show the reasoning behind the ruling. The judge explained that retailers could charge more for a product and then place a discount on that product, but that same retailer could not charge one amount and then add on a surcharge to make up for the credit card fees that the retailer would incur (even if the price in both those scenarios were the same). Judge England said the California law restricted how the retailer presented their price to the consumer, regardless of why they were charging or reducing specific prices.

 

"These fees are typically passed on to all consumers in the form of higher prices for goods and services. Both state and federal law, however, permit merchants to pass swipe fees on to only those consumers who pay with credit cards. Merchants may do so by charging two different prices depending on how the consumer pays: a higher price for using a credit card, and a lower price for using other payment methods (cash, a personal check, or a debit card)," the retailers’ complaint states. "But, in California, merchants may engage in dual pricing only if they communicate the difference between the cash price and the credit price using the right language."

 

The judge ruled the law unconstitutional, restricting the retailers’ rights, but also said the language of the bill was so vague that a retailer could be unaware of when it might be violating the law.

 

"Plaintiffs cannot frame their price how they would like, even though they are allowed to speak with their customers generally about the credit card industry and the merchant fees that the industry charges," the judge concluded. "The fact that retailers – even large national retailers with teams of in-house attorneys – do not use a dual-pricing system under the current law due to fear of enforcement is proof that the law is not clear."

 

News Release Provided By:

NACS Online News & Media Center

 

About NACS

NACS was founded August 14, 1961, as the National Association of Convenience Stores. It is an international trade association representing more than 2,200 retail and 1,600 supplier company members. NACS member companies do business in nearly 50 countries worldwide, with the majority of members based in the United States. The U.S. convenience store industry, with 152,794 stores (as of December 31, 2014) across the country, posted $697.5 billion in total sales in 2014. The convenience retailing industry continues to be dominated by single-store operators, which account for 63.0% of all convenience stores (96,318 stores total).

 

NACS serves the convenience and fuel retailing industry by providing industry knowledge, connections and advocacy to ensure the competitive viability of its members' businesses. In 2007, the association shortened its name to NACS and added a tagline that better defines its presence both internationally and at the retail fueling level: The Association for Convenience and Petroleum Retailing. In 2010, this statement was further enhanced to The Association for Convenience and Fuel Retailing.