Retailers across the country are paying close attention to a series of legal battles over state laws that prohibit merchants from charging an extra fee to consumers who pay by credit card.

One ongoing case involves a New York statute that prohibits merchants from imposing a surcharge on customers who choose to pay by credit card rather than by cash, check or similar means. Instead, merchants may pass transactions fees on to customers either by distributing the cost to all customers, regardless of the means by which they pay, or by providing discounts for those paying by cash, check or similar means. The purpose of the New York law is to prevent customers from being enticed by low prices only to find at the cash register that the price will be higher if a credit card is used.

Recently, merchants challenged the statute as a violation of their First Amendment rights, as although the law allows merchants to charge credit card users higher prices, it prohibits describing the credit card price as an additional percentage or dollars-and-cents amount.

For example:

Allowed Not Allowed
$10.30, and if you pay by cash, check or similar means you will pay $10.00 $10.00, and if you pay with a credit card you will pay an additional three percent
$10.30 if you pay by credit card $10.00 if you pay by cash, check or similar means $10.00, and if you pay with a credit card you will pay an additional 30 cents

The US Supreme Court concluded that the law regulates speech and asked the Second Circuit to determine whether the law is constitutional under the First Amendment. Specifically, the Second Circuit is to decide whether the law is a valid commercial speech regulation and whether the law can be upheld as a valid disclosure requirement under Supreme Court precedent. To answer these questions, the Second Circuit first needed clarification from the New York Court of Appeals as to whether posting the total dollars-and-cents price, for example $10.30, is a necessary condition of satisfying the statute. The New York Court of Appeals advised that a merchant complies with the statute if and only if the merchant posts the total dollars-and-cents price charged to credit card users. The court stated that this requirement ensures that customers see the highest possible price without having to engage in “arithmetic calculation,” thus alleviating the concerns about misleading customers by use of low prices available only for cash purchases.

Therefore, until the Second Circuit determines the constitutionality of the New York law, merchants should post the total dollars-and-cents price for credit card use and then offer a discount for those customers paying by cash, check or similar means.