You’re not supposed to be told the real cost of credit card use.
The owner of a small town beauty salon outside Binghamton, New York argued at the U.S. Supreme Court on Tuesday for the right to tell her customers the truth about paying by credit card: There’s a swipe charge.
On the other side, New York’s Attorney General, Eric Schneiderman, is battling to defend a state law that protects credit card companies. New York bars merchants from charging card users extra or even informing customers “it costs more” to pay with plastic. Cash discounts are legal, but credit card surcharges are not, even though the math is the same.
Ten states have laws like this, including Connecticut, Florida, Texas, and California. It’s a huge favor to the credit card industry, at the expense of all consumers. Residents of these states should ask why their lawmakers are siding with the credit card industry against local businesses and shoppers.
Expressions Hair Design and four other New York small business owners claim the law violates their First Amendment right to free speech. That’s what the Supremes will decide. The outcome of Expressions Hair Design v. Schneiderman will affect one quarter of all shoppers in the U.S.
Arguing for the business owners is Deepak Gupta, a consumer rights lawyer whose mother gets her hair done at Expressions. Gupta points out that under New York’s law, merchants can charge less for cash, not more for credit. Gupta says it’s semantics. If a hairdo can be bought for $30 in cash or $32 by credit card, does the customer incur a $2 surcharge or get a $2 cash discount?
But credit card companies know that customers react positively to discounts and negatively to surcharges, and they’ve lobbied aggressively for state laws against credit card surcharges. When New York lawmakers complied in 1984, enacting the law now being challenged, a memo justifying the state’s support declared “surcharges, even if only psychologically, impose penalties on purchasers,” an impression credit card companies want to avoid
Whose side is the state legislature on? American Express, Capital One, Visa, and other credit card companies donate tens of thousands every year to state politicians and their PACS, including Schneiderman. That’s true across the country.
All shoppers are paying the price, not just those who use plastic. The law intimidates merchants with stiff penalties: $500 fine or a year in jail.
New York State has periodically enforced the law aggressively. A.G. staff posed as customers and calling up merchants, asking for quotes for heating oil and other products. Companies were warned not to suggest that it costs more to pay by credit card.
With intimidation like that, no wonder merchants silently pass the cost along to all their customers. Nationwide, that’s a whopping $50 billion a year in transaction fees.
You can bet the fees would be lower if customers knew the truth. Stop & Shop, Walgreens, Kroger and other giant merchants are siding with Expressions, telling the Court the key issue for merchants is the freedom to “provide truthful information to their customers at the point of sale about the real cost of paying by credit card.”
When merchants in Florida challenged a law similar to New York’s, the federal courts ruled in their favor, deciding that “banning merchants from uttering the word surcharge” criminalizes “speech that is neither false nor misleading.”
That’s not how Schneiderman sees it. He says New York is regulating conduct, not speech, and is protecting customers from being blindsided at the cash register with a surcharge. That’s hard to believe, when gas station owners have been prosecuted for saying it would cost “five cents extra” to pay with a credit card.
Even after the Supremes heard the case and debated among themselves over how to price a pastrami sandwich, it’s unclear how the Court will vote. But lawmakers in all ten states should move quickly to repeal this anti-consumer legislation so merchants can level with customers about the cost of credit.