The U.S. Supreme Court on Wednesday threw out a ruling that upheld a New York law barring retailers from charging more to buy with credit, sending the case back to a lower court to decide as a free speech issue not as pricing regulation.
The merchants that challenged the law argued it violated their free speech rights under the U.S. Constitution’s First Amendment, and the 8-0 ruling by the justices handed them at least a temporary victory. The justices returned the matter to the New York-based 2nd U.S. Circuit Court of Appeals, which upheld the law in 2015 as legitimate pricing regulation.
Retailers are forced to pay fees to credit card companies every time a customer buys with a card. The New York law barred retailers from imposing a surcharge on customers who made purchases with a credit card. It also made it impossible for merchants to call fees paid to credit card companies a surcharge that is added to the price of a product. The law did not stop retailers from offering a discount for cash purchases.
The case hinged on whether the justices saw the law as a speech restriction or a traditional form of price regulation that is not subject to a free speech challenge. Although the court, in a ruling authored by Chief Justice John Roberts, ruled that it is a speech regulation, it did not decide whether or not the measure is lawful.
Five merchants, including a Brooklyn ice cream parlor and a hair salon near Binghamton, challenged the law. Merchants contend laws like the one in New York infringe on their free speech rights by dictating how they describe their pricing to customers.
Retailers have long complained about the cost of accepting credit cards including “swipe fees,” a percentage of a credit card transaction the merchants pay to networks such as MasterCard Inc and Visa Inc every time a credit card is swiped to pay for a purchase.
The New York law subjected merchants to a potential one-year prison sentence and $500 fine for imposing credit card surcharges.
In 2013, U.S. District Judge Jed Rakoff sided with the merchants and blocked enforcement of the law. The appeals court then upheld the law in 2015.