A new law passed in California that bans payment-card surcharges was ruled unconstitutional by a federal judge last week (March 26).
This 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). 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.
Retailers, of course, want consumers to pay cash to avoid the swipe fees, but they want the ability to add a surcharge fee on consumers to make up for the difference. The businesses involved in the case said the inability to place a swipe fee surcharge could present an economic hardship, particularly on small businesses.
"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 too vague so the retailer was unaware of when they may 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."