March 30, 2017

"A New York law prohibiting merchants from charging extra for credit card transactions might violate the constitutional protection for free speech..."

... the Supreme Court ruled yesterday, in Expressions Hair Design v. Schneiderman, writes Daniel Fisher at Forbes.

The Second Circuit had viewed NY's law as only governing conduct, but the Supreme Court said that was wrong. There's a speech angle:
Writing for the majority, Chief Justice John Roberts said the New York law is “not like a typical price regulation,” because it doesn’t tell merchants what they can charge but rather how they choose to communicate their prices to consumers.

"They also want to make clear that they are not the bad guys—that the credit card companies, not the merchants, are responsible for the higher prices," Roberts wrote. "The merchants believe that surcharges for credit are more effective than discounts for cash in accomplishing these goals."

42 comments:

exhelodrvr1 said...

Just have the credit card transactions think that they are cash transactions. That way, the merchant won't have to pay the credit card companies to use that service, and so they won't have to charge the customer extra to make up for that.

Sebastian said...

Congress shall make no law, therefore state governments cannot tell businesses how to charge prices. Amurrica!

Gahrie said...

Surely this is twisting the meaning of the words in an absurd fashion?

Kristian Holvoet said...

The lower court decided that 'you can charge whatever you want, you just can't call a surcharge a surcharge' as regulating conduct, not speech? I assume that decision must have been authored by Majikthise and / or Vroomfondel, who may or may not have been judges.

Dust Bunny Queen said...

I thought this was already settled. Maybe just in some States?

You can tell the customer that if you use a credit card there is an addition % or charge assessed by the CC company. Ditto with ATM fees.

If you use cash there is not an additional charge. If I don't care...or don't have cash, I, as the customer, can make up my own mind. Letting the customer know up front that there is a charge or discount is to be fully informed.

Why is this controversial?

richlb said...

Credit cards originated as a convenience for the merchant. It was a way to offer more payment options to generate customers. The transaction fees were a small (relatively speaking) cost the merchant paid to increase potential customers. But in today's society, I bet 75% of all retail transactions are card-related. This means the merchants see a potentially significant amount going out the door to someone else (the card processors).

Merchants SHOULD account for this when setting prices. They should understand the processing fees are another cost of business, like the electricity or window washers.

This dovetails with the discussion of restaurants putting a surcharge on their checks to cover the minimum wage hikes. On the one hand, it should be compensated via the listed price for items/dishes. On the other hand, it's nice to know exactly what you are paying for, why, and who is responsible.

Dust Bunny Queen said...

Merchants SHOULD account for this when setting prices. They should understand the processing fees are another cost of business, like the electricity or window washers.

They do account for this. Explaining to the customer that those fees are added to the cost of the goods or services and if you use cash you will not have those fees is full disclosure to the customer.

Just because other people use cards, why should others who use cash be penalized?

brylun said...

New York State itself charges a 2.25% "convenience fee" for using a credit card to pay for State Income Taxes. https://www.tax.ny.gov/pay/ind/pay_income_tax_credit_card.htm.

rhhardin said...

Offer discounts for cash, like doctors do.

richlb said...

@Dust Bunny Queen

So by your logic, if I go to Best Buy and purchase a TV, I should pay an electrical surcharge for the price of the electricity used to display TV's. But if I bought a CD, no surcharge. What about charging customers who drive and park in the lot a surcharge for the cost of cleaning the parking lots; but not charging customers who walk or take the bus?

My point is that the cost of doing business, every facet, should be worked into the cost of the items.

I'm not entirely sure where I fall on this one. On the one hand, I totally understand the desire to maximize profit. If that means passing on the cost of the transaction to the customer DIRECTLY at the point of sale, so be it. But I also don't want to get to the point where every transaction has many "extras" to add on like a phone bill.

richlb said...

@rhhardin

How I understand it (maybe it's just in my state) is that it's totally above board to offer a discount for cash, but murky if you charge extra for paying by credit card. Although they accomplish the same thing, the framing makes a difference.

I think adding extra for the CC fee is easier to calculate. it also allows the merchants to list a lower "base price" that is available to everyone under the right conditions (paying with cash). Offering a discount for cash means you'd show the base price and the discount would be less apparent.

richlb said...

Also - a few years ago, this was a major hot topic over at Consumerist.com.

Left Bank of the Charles said...

I hate the car rental company websites where they quote you a price and only later do you see all the addons for taxes and fees. I suppose they are making a political statement about how car rental customers get gouged by the government at airports. I don't like that, but I hate what the car rental companies are doing where their stated price tag gets doubled at the checkout.

Dust Bunny Queen said...
This comment has been removed by the author.
Susan Petrik said...

richlb,
Leaving aside the First Amendment issue, I'd like to respond to your initial post. If a merchant just estimated the c/c processing expense and embedded it into prices generally, then the economic effect would be that cash customers are paying more in order to subsidize c/c customers. How can such a mandate possibly be sound public policy?

Mike (not Susan) Petrik

Dust Bunny Queen said...

So by your logic, if I go to Best Buy and purchase a TV, I should pay an electrical surcharge for the price of the electricity used to display TV's. But if I bought a CD, no surcharge. What about charging customers who drive and park in the lot a surcharge for the cost of cleaning the parking lots; but not charging customers who walk or take the bus?

Now you are just being ridiculous. As a business owner I don't give a rats patooty what you do with your product after you leave my store or what you do outside of my store. HOW you pay for the product and what my costs are relative to that transaction is another issue.

As a business owner, as I have been and am now, you do factor in all the costs of doing business. Some costs are variable. Some are fixed. Others are fungible. You factor in all of those costs when pricing your product as well as factoring in the competition's pricing.

If a cost can be legally avoided, such as credit card fees, and you can avoid that cost by letting the customer know that they TOO can avoid that cost....it is good business and good customer service. As a merchant it is no skin off of my nose if you WANT to pay a credit card fee. As a customer, I would appreciate knowing that I can avoid that cost and be given the choice. Otherwise I as a customer am paying more for my product to subsidize the cost of other customers using CCs.

Phrasing it as a discount for cash is one way to get around the legalities.

walter said...

"The merchants believe that surcharges for credit are more effective than discounts for cash"

I first encountered this overseas a good number of years ago.
When I looked into it, the terms of accepting some cards (I think MC) didn't allow charging customers like this.
Merchants looking only at the transactional fee show also consider the number of customers who are only able to buy because they are willing to pay interest on their CC debt. It would be interesting to know the amount of their revenue comes from that scenario.

jimbino said...

I've been negotiating for a 3% cash discount for years, with docs, dentists and anyone else who takes credit cards. Except for Walmart, Amazon, Home Depot, Lowe's and Menards. I recently bought an $18000 used Subaru and negotiated a $540 cash discount after the price was negotiated as a condition of the purchase.

John said...

I wonder what the additional cost of CC processing relative to cash really is?

I think the CC companies charge 3-6% of the total as the fee. I believe it is a sliding scale so a bigger store with more transactions will pay a lower rate than a smaller store. OTOH, the money is immediately available.

But handling cash carries costs too. You have to count it and manage it, get it to the bank or have it picked up. Theft both internal by employees and robberies, risk of counterfeits etc.

I suspect that the cost of handling cash is less than the cost of handling credit cards but how much less is it?

Another issue, to the business owner, is that the cost of CC fees is concentrated and explicit so they see it. The cost of handling cash is diffuse and hidden so unseen.

Still, this seems like an issue for the CC companies to resolve with their customer, the business. They can put in their terms of service a clause "No surcharge for CC transactions." At least with their card.

John Henry

Original Mike said...

Blogger Left Bank of the Charles said..."I hate the car rental company websites where they quote you a price and only later do you see all the addons for taxes and fees. I suppose they are making a political statement about how car rental customers get gouged by the government at airports. I don't like that, but I hate what the car rental companies are doing where their stated price tag gets doubled at the checkout."

I've been renting cars in Australia and New Zealand lately. There, the price they quote you is the full price, including fees and taxes. It is nice.

rehajm said...

I don't carry cash and try to pay for everything with a charge card. Apple Pay to be more specific, so I don't have to wrestle with the chip readers. If a merchant adds a fee for credit cards I look to go elsewhere. Fee adders tend to be mom and pops or gas stations that have good locations so they charge higher prices anyways.

Sorry mom and pop.

John said...

A sort of related issue arose here in reverse a few years back when PR implemented a sales tax.

At one of the big hotels, they were charging, say, $5 for a beer, including 11% sales tax. ie; $4.50 for the beer and 50cents tax.

Govt said no. They had to charge $4.50 for the beer and add the sales tax on top. It could not be included in the price. They didn't have to charge $4.50, they could charge what they wanted but the tax had to be separate.

Prior to that we had an excise tax, paid by the merchant or distributor when the goods came onto the island. Back in the 70s when this started, some stores tried to price with the excise tax broken out. A shirt might be priced at $10 plus $1 for the excise tax. Stores had to show the price as $11. They could not show the cost of "El vampirito de Hernandez Colon" Hernandez Colon was the governor who initiated the "little vampire" tax.

John Galt had it right when he said, to govt, "Get out of the way!"

We may need the tax but merchants should have the right to show it or eat it according to taste and customers.

John Henry

John said...

Blogger Original Mike said...

I've been renting cars in Australia and New Zealand lately. There, the price they quote you is the full price, including fees and taxes. It is nice.

I rent cars frequently and they always show the full charge when I make the reservation.

They show a daily cost of the car then, when I select one, they show the total cost with fees and insurance. Never any surprises. I generally rent from Avis but rented from Dollar a couple times last year with the same thing.

John Henry

Dust Bunny Queen said...

I think the CC companies charge 3-6% of the total as the fee. I believe it is a sliding scale so a bigger store with more transactions will pay a lower rate than a smaller store. OTOH, the money is immediately available.

@ John Henry

For businesses who do big ticket items, refrigerators, televisions, etc....they probably don't mind the CC fees, because handling large quantities of cash is problematic for many of the reasons you quote and because of the CTR rules for cash. However....most of those types of business also offer their own credit cards or processing. This way they can reap all that tasty interest income for themselves.

It is the small businesses who have multiple small transactions on a daily basis, hate the credit card fees and prefer cash or debit cards.

John said...

A bit OT but one of my clients, a big 5 pharma, pays me 90 days net. That means that they take 3 months to pay my complete invoice.

BUT

They have a speedy pay system. Last week I submitted an invoice electronically. A few hours later I got an email saying it had been approved and if I would accept an 8% (or so) discount, they would pay me immediately. Had I said no, they would have come back a week or so later offering me a 7.5% discount and so on until it aged the full 90 days.

I took the discount and they had the money in my bank that night. Cleared and immediately available.

Another client, a different big pharma, pays 2% 10 net 60 days. That means they pay the invoice in full in 2 months or, if I agree, they pay 98% of the invoice amount in 10 days.

I like both systems since cash flow is king. A few bucks less to get my money now? Oh, yeah. Any day of the week.

Most of my clients are net 30 days, meaning that they send the check 30 days after they approve the invoice. I typically get the money about 40 days after I submit the invoice. Not complaining but faster is better.

John Henry

Hagar said...

I thought the thing was that the cost of the credit card fee was less than the cost of processing a check, especially for small everyday transactions.

Anyway, how they present the bill should be up to the vendors, but they will have to live with the repercussions, if any, from the customers.

I would love to get a phone/TV/internet bundle bill that I could tell just what the hell I was paying for!

Hagar said...

I do not care if the Government charge for supporting the Spanish-American War is shown on the phone bill, or not, but I would like to see what "options" I have been paying for that I never knew existed!

Kirk Parker said...

jimbino bought a white man's car? Whoa, what's next--a visit to Yellowstone or Yosemite???

What a strange crazy world we live in... personally, I blame Trump.

Dust Bunny Queen said...

pays 2% 10 net 60 days

@ John Henry

Our largest supplier of pumps, tanks etc gives us terms of 2% 30 net 60 days. We always pay before 30 days because that 2% really adds up over the year. Once a year we get a special promotion for purchases in a 2 week period of 2% 60 net 90. Wooo hooo. Stock up!!!

Peter said...

"Merchants SHOULD account for this [merchant fees] when setting prices. They should understand the processing fees are another cost of business, like the electricity or window washers."

And I'm sure they do. Nonetheless, when both buyer and seller know there's a merchant fee, the buyer (at least of a big-ticket item) will often be able to negotiate a discount. Indeed, if the buyer has one of the many "cash rewards" cards, a rational buyer would not pay cash unless the discount exceeded the cash rewards percentage.


"The merchants believe that surcharges for credit are more effective than discounts for cash in accomplishing these goals."

And I don't doubt they're correct. Although that doesn't say much for the public's math comprehension, does it?

I realize this hinges on whether or not the law prescribes or proscribes some speech (and it seems to do just that, even though the speech here is commercial speech). But, if the credit card companies require merchants to do this as a condition of obtaining a merchant account, what is the need for such a law?

Which is to say, why would the legislature feel a need to tell merchants how they must speak when describing the difference between cash and credit-card prices (when there are differences, of course)?


Kirk Parker said...

Peter,

"Which is to say, why would the legislature feel a need to tell merchants how they must speak when describing the difference between cash and credit-card prices (when there are differences, of course)?"

They aren't!

Instead, they (except here "they" is the courts) are telling both the card issuers and the legislatures that merchant contracts cannot contain speech-prohibiting clauses (as being contrary to public policy.)

Peter said...

"If a merchant just estimated the c/c processing expense and embedded it into prices generally, then the economic effect would be that cash customers are paying more in order to subsidize c/c customers. How can such a mandate possibly be sound public policy?"

Perhaps the point is whether such policies should be "public policies" (i.e., mandated by law) and not whether or not such policies are "sound"?

Merchants are free to accept or not accept credit cards, and they are free to offer or not offer cash discounts. Customers are free to demand cash discounts from merchants who accept credit cards and to take their business elsewhere if they are refused. If all actors are free to do as they please then where is the justification for government mandates?

In any case, all forms of payment have associated costs: for example, checks sometimes bounce and cash creates opportunities for employee theft.

BTW, governments will almost always demand payment in cash if they're not allowed to charge extra for credit cards because they (unlike merchants) need not worry that you'll decline to make the purchase if you have to pay cash for it (or just take your business elsewhere). Yet at least some of those paying government fees or taxes would be willing to pay a surcharge for the convenience of using a credit card. Thus, the denial of this convenience is a cost of mandating that the price difference be presented as a "discount" instead of a "surcharge."


Kevin said...

"Offer discounts for cash, like doctors do."

Or politicians.

Larry J said...

brylun said...
New York State itself charges a 2.25% "convenience fee" for using a credit card to pay for State Income Taxes. https://www.tax.ny.gov/pay/ind/pay_income_tax_credit_card.htm.


Yes, every government entity that I've ever dealt with charges more if you try to pay by credit card. Their web services plainly state the surcharge applies if you want to pay by credit card. It's hypocritical to do that but prohibit merchants from doing the same thing.

jimbino said...

@Kirk Parker

jimbino bought a white man's car? Whoa, what's next--a visit to Yellowstone or Yosemite???

I'd like to blog to see the day when such ad hominem and sarcastic racist comments are filtered out of discussions of credit card fees.




















Rick said...

The court has to step back in only because the government improperly interfered in the first place.

Hari said...


The law says that the merchant cannot tell customers that they pay more for using credit (though they can obviously infer this).
The merchant can only tell the customer that they pay less with cash.
What is the state's interest in limiting the message the merchant conveys to the customer?

To be clear, the state is not saying that the merchant cannot charge two different prices; only that the merchant can convey this information in specific manner.

Static Ping said...

When I went to Amsterdam, stores were typically reluctant to take credit cards. The touristy areas were fine with it, but the further you got away from there the more likely they would be disappointed or would refuse credit cards altogether. That almost got me in trouble in one establishment, but I had sufficient euros on hand to cover the bill.

As to the case at hand, I fail to see the government's interest here. So you don't want the customers to know what the credit card costs are. Why?

lgv said...

When I looked into it, the terms of accepting some cards (I think MC) didn't allow charging customers like this.

All cc companies used to have the rule, but not in all countries. Merchants started breaking the rules and I don't no why or when exactly the rule was abandoned. What the merchant pays in cc fees is highly variable. Total volume, average ticket size, swiped versus entered, business type (e.g. travel agents pay a very high rate). Rates are often blended with transactional fee plus a percentage. You have a gateway and a merchant processor.

Taking cash is very inconvenient. Taking cards is easy, but you pay for it. Charging extra for credit cards makes sense for some, but not for others. We keep it simple and our pricing reflects the cc fee as a variable cost. If people pay with cash, we don't discount it because there is a cost associated with transaction processing and physically handling the cash (safe, creating deposit slip, and going to the bank).

SteveM said...

On each pump at the gas station, there are posted two prices -- on for cash and a higher one for credit card. I happened to notice the other day that the difference between the two prices was narrower than I recall it used to be.

Static Ping said...

SteveM, I see the same thing. When the prices start to drop to a certain level, the gap reduces a few cents a gallon. I like it because it means gasoline prices are relatively low.

Francisco D said...

Justice Roberts seems to have a very creative mind, but I am not sure if that is a good thing in his position.

He found a too-clever-by-half way to pass Obamacare. Now he views commercial transactions as exercises in free speech. The NY law was stupid, but stupid does not necessarily mean unconstitutional.

Jimbino had it right. Companies cover their credit card processing fees by raising all prices. You can negotiate a discount with many merchants if you pay cash. That doesn't work for car dealerships. They make as much money off the loan as the car.