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Appeals Court: New York State Can Ban Credit Card Surcharges

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It is still against the law in New York for stores to add “surcharges” to customers. But it is not a crime to offer a “discount” to cash customers.

The arcane semantic game played out in federal court this week. Consumer advocates say the ruling means poor customers are subsidizing rich customers.

The debate boils down to “swipe fees,” the sliver of money credit card companies get of each transaction, usually one to three percent. The surcharge ban forbids retailers from charging different prices at the register so stores just incorporate the cost of credit card transactions into everything they sell.

Consumer advocates say this is unfair to cash customers.

“The people who are the poorer customers who don’t have credit cards are subsidizing the frequent flyer miles of the richest consumers,” says Deepak Gupta, the lawyer fighting the law that bans surcharges.

Gupta argues that New York is forcing stores to use the word “discount” and not the word “surcharge.” In other words, the state is regulating free speech.

“And it’s doing so for a pretty bad reason, which is trying to protect the credit card industry. Because the credit card industry doesn’t want customers to be aware that things cost more because of credit cards.”

Gupta says that if stores could just call surcharges surcharges, customers would know the true cost of goods.

But credit card companies say that’s not true.

The New York Credit Union Association successfully argued that the ban keeps retailers from tricking consumers at the checkout register. For example, a store could advertise one price and then just slap on a surcharge that blames credit cards.

Nine other states have laws banning credit card surcharges, including Connecticut. A federal appeals court upheld New York’s law, but another judge struck down California’s law earlier this year.

The issue will likely go before the Supreme Court next year.  

In 1984, New York state lawmakers passed a ban on merchants passing along a fee they pay to the credit-card issuer each time a customer charges a purchase.

In 2013, five businesses — including a hair salon, an ice cream parlor and a liquor store — took the state to court, saying the ban violated their First Amendment and due process rights.

A lower court judge had ruled in the businesses favor. The 2nd U.S. Circuit Court of Appeals overturned the lower court decision and ruled in the state’s favor.

Lawyers for the businesses did not immediately respond to requests for comment.

Charles is senior reporter focusing on special projects. He has won numerous awards including an IRE award, three SPJ Public Service Awards, and a National Murrow. He was also a finalist for the Livingston Award for Young Journalists and Third Coast Director’s Choice Award.
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