Merchants
and credit-card networks have battled for years over “interchange” fees, the
charges that merchants pay when they accept cards in retail transactions. In some
countries, merchants have persuaded regulators to cut the card companies’
prices. In the United States, merchants have challenged the fees in a seemingly
endless series of antitrust cases, one of which (Visa v. Stoumbos) was on the court’s fall argument calendar before it
was dismissed as improvidently granted. Merchants also succeeded in obtaining a
provision in Dodd-Frank, the financial-services reform law enacted after the
recent recession, that sharply curtailed interchange fees for debit cards.
Merchants also have
tried to battle the fees at the cash register. Specifically, some merchants
would like to persuade customers not to use credit cards by charging more when
they do so. That conflict has played out for the most part in state
legislatures, where credit-card networks and consumer advocates have pressed
for legislation making it illegal to impose a surcharge for use of a credit
card. The federal Truth in Lending Act included such a rule for a time, and ten
states (including New York) presently forbid that practice. Importantly, the
statutes typically do not prohibit merchants from offering a discount to
purchasers who pay with cash or checks. Economically, the distinction between
offering a discount for cash (or checks) and imposing a surcharge for cards
might seem like a small thing, but the protracted legislative battles over the
question show that both merchants and card networks think the difference is
crucial.
So how, you might ask, does such a
prosaic commercial battle reach the Supreme Court? The merchants have come up
with the creative idea that the New York anti-surcharge statute violates the
First Amendment because it prevents merchants from using “surcharge” as a way
to describe any higher price they charge to payment-card users. The U.S. Court
of Appeals for the 2nd Circuit rejected the merchants’ contention out of hand,
concluding that the New York statute regulates only conduct, not speech. In
that court’s view, the statute affected only a “pricing practice,” something
that is not subject to First Amendment scrutiny.
The petitioners, a group of merchants
led by Expressions Hair Design, argue that the 2nd Circuit’s decision entirely
misses the point of the statutory prohibition. They emphasize that the statute
plainly would permit the merchants to charge different prices to card users and
cash users if they told the cash users they were getting a discount; the only
thing the statute prohibits, they argue, is the truthful statement that
merchants are imposing a “surcharge” for the use of a card. The difference
between a “cash discount” and a “card surcharge” is not merely semantic, they
argue, because consumers are more likely to respond to the “surcharge” label
than the “discount” label. By forbidding merchants to use the surcharge label,
the statute effectively prevents merchants from using truthful information to
influence the behavior of their customers. Framed that way, this case belongs
in the long line of First Amendment cases invalidating statutes that interfere
with markets by prohibiting truthful advertising.
The biggest problem with the merchants’
position is that their attack may not match the statute before the court. New
York defends its statute as a classic pricing control – outlawing the specific
pricing practice of charging cardholders more than the list price of a
commodity. Merchants are free to post two separate prices, they are free to
obligate cardholders to pay the higher price, and they are free to say anything
they like about why they choose to do so. What they can’t do, though, is
establish a “list” price or “sticker” price and charge cardholders an extra
amount above that price. New York points to a host of long-standing state and
federal statutes, never challenged under the First Amendment, that prohibit or
limit various charges above a merchant’s benchmark price.
The remarkable volume of amicus briefs
underscores the high stakes in play: twelve in support of the merchants, ten in
support of New York, and one (from the United States) in support of neither
party. In part, the variegated interests reflect the cross-cutting concerns
that the litigation raises. Because the case turns on the doctrinal framework
for assessing commercial speech under the First Amendment, First Amendment
scholars are concerned, weighing in with dueling amicus briefs on each side of
the case. Because a central debate in the case involves the idea that consumers
react differently to “discounts” and “surcharges,” behavioral economists have a
lot to say; competing groups of economics scholars also chime in on both sides
of the matter. Consumer advocates concerned about the market power of
credit-card networks appear in support of the merchants. Other consumer
advocates join state governments in supporting New York, attempting to ensure
that states are free to adopt consumer-protective pricing regulations. And that
doesn’t even get to the briefs from businesses with a relatively direct
interest in the question as a matter of profit and loss.
For me, the main thing to watch for in
the argument will be whether the advocates on either side can get the justices
interested in anything other than the most minimalist decision. The case will
be heard by the existing eight-member bench, which has shown a strong
predilection for disposing of cases on the narrowest possible ground, often
without providing much help in resolving the underlying dispute. Against that
backdrop, the parties’ starkly different understandings of the way the statute
actually works almost cry out for some sort of minimalist decision sending the
case back to the 2nd Circuit for further explication of how the statute
operates on the ground. It will be a notable achievement if any of the
advocates can persuade the justices to speak directly to the resolution of the
case on the merits.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog
in various capacities, is among the counsel on an amicus brief in
support of the petitioner in this case. However, the author of this
post is not affiliated with the firm.]
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