California Surcharge Ban Ruled Unconstitutional

A federal judge ruled March 26 that a California law banning retailers from charging customers a surcharge on credit card purchases is unconstitutional because it is too vague and violates the First Amendment right of free speech, PYMNTS.com has reported.

U.S. District Court Judge Morrison England found that the law violates First Amendment rights by restricting commercial speech and dictating how retailers can advertise price differences between cash and credit purchases.

California law states that retailers cannot impose a surcharge on consumers who use a credit card instead of paying by cash or check. Retailers can, however, offer discounts to encourage consumers to pay by cash.

For example, under the law a fuel retailer that posted a cash price of $3.50 per gallon for fuel and a credit price of $3.60 per gallon must characterize the lower price as a discount for cash. Characterizing the higher price as a surcharge for credit is illegal. 

The court has held that the law is vague and unenforceable because there is no way to tell whether the pricing arrangement is a discount for cash or a surcharge for credit.

"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 wrote.

Every time a consumer swipes a credit card, credit card issuers charge the retailer a fee, commonly known as an interchange fee or swipe fee. Those fees put tremendous financial pressure on retail store owners across the country. Businesses in California want to pass those surcharges onto consumers.

 

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