WASHINGTON. D.C. — The cash vs. credit debate is as common in retail as paper vs. plastic — bags that is — but now the U.S. Supreme Court will review the use of the words surcharge vs. discount when it comes to choosing one payment form over another.
As Expressions Hair Design v. Schneiderman makes its way to the docket, the National Retail Federation (NRF) has called on the U.S. Supreme Court to allow merchants to freely and accurately show customers the added costs that come with paying by credit card rather than cash.
"Retailers have no interest in surcharging their customers for using credit cards," NRF Senior Vice President and General Counsel Mallory Duncan said. "That would be the opposite of our goal to bring credit card swipe fees under control. But merchants do want to be able to show customers the cost of using a credit card without running afoul of the law.
"This case isn't about surcharging," Duncan said. "It's about giving retailers freedom of speech when they try to give their customers a break for paying by cash. Some states allow cash discounts but prohibit credit card surcharges. A gas station owner shouldn't be hauled into court for saying gas is $2.90 a gallon cash and $3 credit rather than saying $3 credit and $2.90 cash."
Justices are hearing arguments Jan. 10 in Expressions Hair Design v. Schneiderman, which is challenging laws in 10 states that prohibit merchants from imposing a surcharge when customers use a credit card.
According to the National Constitution Center, several states — including New York — have enacted laws that allow merchants to charge higher prices to customers who pay with a credit card rather than with cash. The practice allows merchants to recover money they pay in swipe fees on each credit card transaction.
However, merchants such as Expressions are barred from using the word "surcharge" when informing customers about the price difference. Instead, the word "discount" must be used in New York when referring to a cash payment, Scott Bomboy, editor-in-chief at the National Constitution Center, explained in a blog post.
Under New York law, merchants who use the word "surcharge" face a fine and up to a year in jail. Joining Expressions in the case are other merchants, including Brooklyn Farmacy & Soda Fountain Co., Five Point Academy and Patio.com.
Now the U.S. Supreme Court will consider whether no-surcharge laws restrict speech conveying price information, or whether they regulate economic conduct, he wrote. The court considered the case in private conference on Sept. 26 and granted it for arguments three days later.
The case has already wound its way through district court and the Second Circuit Appeals Court in New York, which said state law regulated prices, not speech, and that it wasn't subject to a higher level of legal scrutiny required in free speech cases.
According to Bomboy, a similar case was decided in Florida, where the 11th Circuit Court struck down a Florida law similar to the New York statute. In that case, the court ruled that barring the use of certain words targeted free speech alone. Then, the Fifth Circuit Court upheld a no-surcharge law in Texas, creating a clear split among lower federal courts.
As NRF explained, banks charge merchants a fee averaging about 2 percent of the transaction amount each time a credit card is used, and a fee of at least 21 cents when debit cards are used.
The fees total more than $50 billion a year, and drive up costs for consumers because card industry rules effectively require them to be built into the price of merchandise, the group said.
NRF is the world's largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United States and more than 45 countries.