NEW YORK--(BUSINESS WIRE)--Opening a new front in the ongoing battle over credit card swipe fees, merchants in California, Florida and Texas today filed simultaneous constitutional challenges to state laws that prohibit store owners from imposing a “surcharge” when customers pay with credit cards instead of cheaper forms of payment like debit cards or cash. The coordinated effort is the work of Deepak Gupta of DC-based Gupta Beck, an appellate and constitutional law boutique, and Gary B. Friedman, whose Friedman Law Group has quarterbacked successful merchant efforts to use the court system to overhaul all of the major credit card companies’ rules in recent years.
Whenever consumers use credit cards, merchants pay swipe fees that are typically passed along to all consumers in the form of higher prices. Merchants are allowed to charge different prices for credit versus cash. But under state laws in effect in California, Florida and Texas, the difference must be described as a “discount” for cash, not a “surcharge” for credit – even though they are mathematically identical.
Today’s three fillings come on the heels of a watershed win in New York, where the same legal team convinced U.S. District Judge Jed Rakoff late last year that the state law banning credit card surcharges violated retailers’ First and Fourteenth Amendment rights. Judge Rakoff ruled that “sellers’ inability to effectively inform consumers of the true costs of credit has the effect of artificially subsidizing credit at the expense of cash, increasing overall credit-card usage and consumer debt.”
“These state laws,” Gupta explained, “just impose the card industry’s preferred speech code. Merchants can charge less for cash by offering a ‘discount.’ But if they call the same offer a ‘surcharge,’ they’re considered lawbreakers. That’s just semantics, and it won’t stand under the First Amendment.”
The filings note that the state laws were adopted in the 1980s as a result of lobbying by the credit-card lobby and “astroturf” organizations – fake consumer grass roots groups set up by the credit card companies.
Today’s constitutional attacks also follow recent hard-won agreements by Visa, MasterCard and American Express – following many years of court battles – to drop their rules against credit card surcharges.
“The wave of momentum in favor of more payment transparency is unstoppable at this point,” said Friedman, who led the efforts against the card company rules. “For decades, merchants have wanted the ability to separately break out the cost of credit cards. And now, the last significant obstacles are hanging by a thread.”
Six other smaller states currently have anti-surcharging laws in place. According to Friedman, the merchants intend to “go after the remaining state laws once the California, Florida and Texas cases are resolved.”