Does a Prohibition on Imposing Surcharges for Paying By Credit Card Violate the Free Speech Protections of the First Amendment?

The Issue: New York, like several other states, prohibits retailers from imposing a surcharge on consumers for paying with a credit card, while allowing retailers to offer a discount to consumers who pay in cash. Some New York retailers challenged the surcharge ban on the ground that a surcharge for credit card use is equivalent to a discount for paying in cash. Consequently, they argued, what the law regulates is simply how differential charges for paying with cash or credit card are described, and thus the prohibition amounts to an unconstitutional restriction on commercial speech. New York responded that surcharges and discounts are different transactions, that the statute regulates conduct (namely, pricing) rather than speech, and that the law is needed to prevent credit card users from being surprised by hidden extra charges.

Public Good’s Contribution: After a Second Circuit panel ruled that New York’s statute did not violate the First Amendment (reversing the decision of the trial court), the retailers petitioned for en banc review. After a petition for rehearing was filed, Public Good filed a short brief in support of neither party, requesting that the Second Circuit’s opinion be modified to remove discussion of the overbreadth doctrine, which the Supreme Court had held inapplicable to commercial speech, and which was inessential to the panel’s disposition of the case.

After the Supreme Court granted review, Public Good filed another brief, on behalf of anti-smoking groups and itself, arguing that the statute should be upheld as a measure protecting consumers against being ambushed by unannounced surcharges that result in prices higher than those posted or advertised. The brief also addressed the argument, raised by some amici supporting the retailers, that the law should be subject to the most stringent level of First Amendment review because it restricted speech on the basis of content. Public Good observed that under this standard almost all unexceptionable regulations of commercial speech and required commercial disclosures would count as content-based and would be subject to the same stringent standard of review, which is almost invariably fatal. Such a legal standard would undermine countless protections of public health and safety, as well as protections for consumers against predatory commercial practices.

After the Supreme Court remanded the case to the Second Circuit, Public Good submitted a third brief, recommending that the court certify to the New York Court of Appeals the question of how to interpret the statute and arguing that the statute was most naturally interpreted as inoffensive to the First Amendment.

Why It Matters: While what might be characterized as a contest between on one side credit card companies seeking to hide the costs they impose on consumers and, on the other side, retailers seeking to charge consumers more than the posted price offers consumer advocates little to cheer for, we were concerned that a decision was likely to set a  precedent that could make it harder to regulate misleading promotions and harder to require sellers to disclose important facts relevant to the safety of their products or hidden costs to consumers.

Court of Appeals: While the Second Circuit’s conclusion was unobjectionable to Public Good, we were concerned about the court’s discussion of overbreadth, a doctrine that the Supreme Court has repeatedly held does not apply to commercial speech, the only sort of speech potentially at issue in the case. The overbreadth doctrine gives special protection to the First Amendment by permitting a law to be struck down entirely even when many of its applications might be constitutional, and allowing challenges by individuals even when their own rights are not infringed. Because this doctrine makes it easier to challenge and strike down laws on First Amendment grounds than on other grounds, it is referred to as “strong medicine.” To depart from precedent to apply this “strong medicine” to protect speech that is only commercial would exacerbate the decades-long trend of stretching commercial speech protections to the point that the First Amendment is now employed to enable businesses to resist regulation of all sorts, endangering public health and safety, consumer protection, and other safeguards on markets.

Supreme Court: Similarly, at the Supreme Court level, our concern had to do not with whether credit card surcharges are prohibited, but with the precedential effect of striking the charges down on First Amendment grounds. The suggestion that the law should be analyzed as a content-based regulation of speech was a particularly dangerous one. Scrutinizing content-based speech restrictions especially stringently is reasonable in some contexts, but not as applied to regulations of commercial speech. Nearly all regulation of commercial speech – from restrictions on misleading advertising to mandated health and safety warnings to the requirement that health claims for food or drugs be based on sufficient evidence – are content-based, and would consequently be unlikely to withstand legal challenge under this standard.

Amici represented by Public Good: Public Good’s brief in the Supreme Court was filed on behalf of Action on Smoking and Health, the American Thoracic Society, the National Association of County and City Health Officials, and the Tobacco Control Legal Consortium, in addition to Public Good itself.

Outcome: In direct response to Public Good’s amicus brief, the United States Court of Appeals for the Second Circuit amended its opinion to significantly modify its discussion of overbreadth, adding an explicit recognition that “overbreadth challenges predicated on the chilling of commercial speech are not available under the First Amendment.”

The Supreme Court subsequently vacated the decision. A 5-justice majority held that the statute regulated speech, but remanded to the Second Circuit without determining whether it violated the First Amendment. The other Justices also supported remand, but thought that the statute needed more interpretation to determine whether it regulated speech. Although the Court did not – as urged by Public Good – uphold the Second Circuit’s decision, the outcome was effectively a victory, in that the Court declined to break new ground in protecting commercial speech, and appeared – for the time being – to reject strict scrutiny. The Court’s analysis of the statute was in important respects closer to that of Public Good than to that of either of the parties.

The Second Circuit then certified to the New York Court of Appeals – as Public Good had urged – the question of how to interpret the statute. The New York Court held that the statute required only that total credit card prices be posted in dollars and cents, and did not limit retailers’ ability to describe the price as including a credit card surcharge.

Public Good’s interventions succeeded in causing several bullets to be dodged.

803 F.3d 94 (2d Cir. Sept. 29, 2016), amended, 808 F.3d 118 (2d Cir. Dec. 11, 2015), and vacated and remanded, 137 S.Ct. 1144 (March 29, 2017), and on remand 877 F.3d 99 (2d Cir. Dec. 6, 2017).

Download our brief filed in the Supreme Court in Expressions Hair Design v. Schneiderman.

Download our brief filed in the Second Circuit in Expressions Hair Design v. Schneiderman.