Justices Wary of Battle on Credit Card Fees

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WASHINGTON (CN) – In a long-running battle over fees that retailers pay on credit card purchases, the U.S. Supreme Court seemed skeptical Tuesday that New York regulation of the issue hampers speech rights.

U.S. merchants face some of the highest swipe fees in the world – roughly 2 to 3 percent of the purchase cost, and sometimes higher – generating more than $50 billion a year in revenue for credit card companies.

While retailers traditionally make up that cost by charging higher prices, an upstate New York salon called Expressions Hair Design is leading a challenge to how the state regulates its pricing.

The Empire State has barred credit card surcharges, under threat of criminal penalty, since 1984. “No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check or similar means,” the law says.

Deepak Gupta, an attorney for the Vestal salon, told the justices Tuesday that the law is unconstitutionally vague since it bars credit card surcharges but allows discounts for paying cash.

Though credit card users pay more either way, the statute caters to the view of credit card companies that customers who face a surcharge are subconsciously dissuaded from paying by card.

The Supreme Court took up the battle last year after the Second Circuit threw out Expressions’ case.

Arguing that speech is at the heart of the issue, Gupta told the eight-justice bench Tuesday how the vague law ensnared more than 50 retailers between 2008 and 2009.

All the state attorney general’s office had to do to catch the businesses was call to inquire about prices. Retailers that disclosed the additional cost for paying with a credit card were targeted.

“That was the only speech that they engaged in,” said Gupta, an attorney with the Washington firm Gupta Wessler. “They disclosed their prices. There’s nothing deceptive about that.”

Justice Sonia Sotomayor seemed skeptical of Gupta’s argument. “I’m not sure what you or anybody is saying about this statute or what it means, but not because it’s necessarily vague,” Sotomayor said. “I just don’t see anything about speech in the statute.”

She added: “To me, it’s very simple — one price for everything.”

New York Deputy Solicitor General Steven Wu urged the justices to uphold the law, which is based on a now-defunct provision of the Truth in Lending Act.

“The plain text of New York’s statute refers only to a pricing practice and not to any speech,” Wu said. “The statue prohibits a seller from imposing a surcharge on a customer who elects to use a credit card.”

Gupta noted that Expressions is the only one of his clients that charges different prices for cash and for credit card purchases. What the other retailers would like to do, Gupta said, is charge customers the actual price, but tell them it will cost more to pay with a credit card.

The attorney pushed back when Kagan suggested that retailers just ensure that the listed price is the credit card price.

This “makes it impossible to frame the price as a surcharge because that normalizes the credit card price,” Gupta said. “It makes that the baseline price, and that effectively defines away a surcharge.”

Justice Stephen Breyer expressed the most concern about a ruling that would force the court to dive “headlong” into price regulation, something he called a dangerous proposition.

Breyer said he would have voted against the law, were he a state legislator.

“I think it does hide the cost,” he said, adding that the court was having trouble with the issue because of the difficulty distinguishing between surcharge and discount.

“The fact that you have the questions you’ve had and both sides of the bench have had such trouble with this, to me, is strong evidence that the court should stay out of this under normal First Amendment standards,” he said.

“Because if we don’t, we are going to discover all kinds of price regulation all over the place that suffers to greater or lesser degrees from this kind of problem,” he added. “And you’ll have judges all over the country substituting for regulators and others in trying to regulate.”