When you buy something in New York and get a “discount ” for using cash, you are probably not thinking about it being a First Amendment right — but the Supreme Court says that you should. The Supreme Court ruled last week that merchants in New York could levy a two to three percent “swiping fee” for running a credit card. And they also ruled that the stores can publicly blame the credit card companies for their need to charge the fee
A New York court ruling will stand, stating that merchants are allowed to levy a one to two percent fee for customers using their credit cards to make purchases. Although surcharges are against the law, if the seller maintains that it isn’t a surcharge but rather offers a “discount” for paying in cash, then they can circumvent the surcharge law. Five companies sued to ensure that they could continue the practice of offering a cash discount because it was their “First Amendment right” to explain the charges and to encourage consumers to use cash.
Manhattan judge Jed Rakoff ruled in favor of the stores, stating that the law violated the stores’ First Amendment rights, but he was very vague in federal court as to why he reached this conclusion. In September 2015, however, an appeals court overturned Rakoff’s judgment, thus allowing the case to continue to the Supreme Court for a final ruling.
John Roberts, Chief Justice of the Supreme Court found that the three prior rulings on the case were incorrect. He maintained that sellers have the freedom to charge $10 for cash and any other amount for credit. The law, he insisted, did not dictate how the seller could communicate prices to their customers.
Since there is no set limit on what a store can charge, it is up to the seller to set prices. Also, it is their First Amendment right to tell the consumer whatever they want about why they are charging any fees, even if the credit card companies don’t like the poor publicity and the consumers don’t like the discount issue.
Roberts’ summary maintained that the merchants wanted to pass along the additional fees to their customers, but also wanted to make the customers aware that they were doing so not of their own accord, but because they were being forced to, due to the higher swipe fees charged by the credit card merchants. He then sent the case back to the appeals court for review.
The laws regarding the usage of discount versus surcharges were originally based on a psychological finding from a 1991 report stating that consumers were more likely to buy something that was discounted versus something that had a surcharge attached to it, even if the two prices were the same.
Brooklyn Farmacy & Soda Fountain, a retro ice cream parlor in Brooklyn, was among the stores that sued and won their case. They insisted that while the swipe charges might not mean much for big businesses,those charges can add up big time for the mom-and-pop-owned stores. They have two choices: either accept only cash and cut down on consumers who only use credit cards, or place a small charge on those who want to use their credit or debit cards.
Rakoff insisted that the law never stated what a seller could and could not charge or even what they could say to the consumer. It is their First Amendment right to charge what they want and to tell consumers why they are charging a specific cost.
So although consumers aren’t thrilled about paying more for their credit card purchases, and credit card companies aren’t very happy about the bad publicity, it is a New York store’s “right” to charge what they want for goods. It is also their “right” to explain to the consumer whether or not they decide to offer a discount for some reason.
It is not their right to charge the consumer, a surcharge, but the courts found no evidence that giving a discount had anything to do with surcharges. Because of that technicality, merchants in New York can continue to give a discount when you use cash, which may save the small-business owner, a significant amount of money.