'No surcharge' laws on credit card purchases are unconstitutional, attorney says

By Karen Kidd | Jul 27, 2016

MIAMI – A case pending before the U.S. Supreme Court concerning the constitutionality of "no surcharge" laws on credit card purchases will determine whether merchants have to keep lying to customers, an official with the Institute for Justice's Florida office said during an interview.

"We've seen this issue over and over again," Justin M. Pearson, managing attorney in the Florida Office of the Institute for Justice, said during a Florida Record telephone interview. "This is nothing less than government getting in the way of people telling the truth to each other."

The U.S. Supreme Court is considering a request by the office of Florida Attorney General Pam Bondi to weigh in on whether it is constitutional to prohibit merchants from applying a surcharge on credit and debit card purchases. Not every state has these so-called "no surcharge" laws and that is where the constitutional question lies, Pearson said.

"Depending on where you live in the country, you can tell the truth or you can't," he said.

Merchants in states with "no surcharge" laws are effectively prohibited from telling the truth about additional charges on credit and debit card purchases, Pearson said.

"If they tell the truth about it, they could go to jail," Pearson said.

The trouble began in 1976, when the U.S. Congress enacted a law that restricted merchants’ ability to pass on the cost of accepting credit cards for purchases by requiring customers pay a surcharge. The federal law sunset in 1984, prompting some states, including Florida, to produce their own "no surcharge" statutes. The Florida Legislature enacted its "no surcharge" statute in 1987.

These laws in the various states lead to litigation that now has culminated in conflicting rulings in four different circuits, mostly over First Amendment challenges.

The Florida Attorney General's office announced in March it would appeal a loss in four companies' constitutional challenge to the state's "no surcharge" laws to the U.S. Supreme Court. That lawsuit, Dana's Railroad Supply et al vs Florida's Attorney General, was filed by four businesses that had received cease-and-desist letters from Bondi's office telling them to stop requiring surcharges from their credit card customers.

In the motion filed with the U.S. District Court for the Northern District of Florida, Bondi agreed not to enforce the Florida Statute, § 501.0117, that the U.S. Court of Appeals for the 11th Circuit struck down in March.

In June, Bondi's office issued its petition for a writ of certiorari, formally asking the U.S. Supreme Court to weigh in on the question. The petition from Bondi's office said there is a direct, entrenched, and acknowledged conflict in the case law in "no surcharge" litigation.

"The 11th Circuit’s decision presents a clear split with both the 2nd and 5th Circuits," Bondi's petition said. "As the dissent noted, a little over a month before the 11th Circuit struck down Florida’s Surcharge Statute, the 2nd Circuit upheld New York’s surcharge law in the face of similar First Amendment and vagueness challenges."

The petition referred to additional conflicts in the various circuit courts and pointed up the urgency for the U.S. Supreme Court to weigh in.

"This Court’s intervention is necessary to correct the 11th Circuit’s contravention of a well-established axiom of First Amendment law," the petition said.

A spokeswoman in Bondi's office declined a Florida Record request for additional comment.

The difficulty in "no surcharge" law cases is that the circuits have issued conflicting rulings, Pearson said. This past fall, the 2nd Circuit ruled in a similar case in New York that a state law prohibiting a surcharge on credit card purchases is not a violation of the First Amendment or the Due Process Clause.

"No surcharge" laws in California and Texas have been challenged in lawsuits that claim First and 14th Amendment violations. In March, the U.S. District Court for the Western District of Texas, Austin Division, ruled the Texas' "no surcharge" law does not violate the First Amendment.

Meanwhile, the Florida Office for the Institute for Justice filed an amicus brief in a "no surcharge" law case filed in the 5th Circuit.

In addition to Florida, New York, California and Texas, other states with "no surcharge" law are Connecticut, Kansas, Maine, Massachusetts, Minnesota and Oklahoma. Puerto Rico also has a statute that prohibits merchants from imposing surcharges in credit and debit card purchases.

These "no surcharge" laws require merchants not impose an additional charge above the regular price for customers paying with credit cards, which forces business owners to lie to consumers, Pearson said.

"Instead of saying they charge more for using a credit card, they have to call it a 'cash discount,'" Pearson said. "It's the same amount they were charging before but they can't call it a surcharge. This is why the law makes no sense. It deprives consumers of reliable information."

The laws also cause a great deal of harm, Pearson said.

"The government is hurting business owners," he said. "They're hurting customers, they're helping no one and they're violating the Constitution."

The laws effectively require merchants lie to their customers, Pearson said. "Or, at the very least, the government is not allowing them to tell the truth. Businesses should not have to perform linguistic gymnastics as a part of doing business."

Despite "no surcharge" laws, the truth remains, Pearson said.

"The truth is that businesses are allowed to pay difference prices, depending on whether a consumer pays with a credit or debit card," he said.

Pearson said he agreed this is a matter too important for the U.S. Supreme Court to turn away and that he hopes the high court will rule on the side of free speech.

"I'm not going to try to predict how the court might rule," he said. "But there is quite a bit of precedent out there protecting free speech."

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