Photo Credit: Courtesy of Alpha Stock Images
By Samantha Aparicio, Staff Member (Vol. 16)
Modern technology and the use of credit cards has created a world where one can make immediate purchases and have access to accounts without the former delay of checks, banks, or cash. This need for immediate gratification has allowed for a monopoly of credit card issuers who can capitalize on customers’ and merchants’ reliance. Most people view credit cards as a necessity to function in our present economy; a tool that creates an ease of access when making purchasing decisions. Does this ease of access have an expense? Who pays the price? In New York, the merchants pay the ultimate price for this immediate gratification. In order for merchants to utilize customers’ credit cards for payment, they must have appropriate technology, and company-approved charging methods, in order to access customers’ funds. However, the Supreme Court has implied that merchants’ First Amendment freedom of speech rights are implicated when states attempt to control how merchants price their goods.
In order to accommodate for the use of credit cards, merchants have two options available to them. They may use an increased price, “credit surcharge price,” that accommodates for the fees that merchants must pay credit card issuers in exchange for the ability to use credit cards as a payment method, or the merchant may offer a discount for the use of cash. Only ten states ban the use of credit card surcharge prices, including New York.
New York General Business Law § 518 provides that “[n]o seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means.” Essentially, the New York law prevents retailers from using this surcharge method to increase the retail price of a product for purchases made with a credit card. However, there are no laws that prevent merchants from utilizing the second of the merchant options: providing a discounted price for customers paying with cash. The penalty for using surcharges and violating this law ranges from a possible $500 fine to a potential one-year sentence in prison.
Price Regulation is Speech
In Expressions Hair Design et al. v. Schneiderman, five New York merchants seeking to impose surcharges for credit card use, filed suit claiming that the law violates the First Amendment by regulating how the businesses may communicate their prices in an unconstitutionally vague manner. This price regulation has historically been found as a regulation of conduct, not speech. Thus, the Court of Appeals found that the law did not violate the First Amendment and refused to continue the constitutional analysis of the law once the regulation was found not to constitute speech.
The merchants contend that the law violates their right to free speech because it regulates how they describe their prices to customers. This case arises from the conflict of merchants attempting to encourage customers to pay with cash, to avoid fees, versus the credit card companies that wish to keep the fees invisible to customers so that they may continue to profit from the use of credit cards. In this case, the majority recognizes that merchants use surcharges as a notification that they are changing product prices solely due to the fees imposed by credit card companies.
The Court refused to embark upon the free speech claims the merchants brought forth concerning the inability to notify customers of credit card surcharges. However, the Court agreed in an 8-0 decision that the law regulated the merchants’ speech rather than their conduct. The Court left the determinations to whether there was a First Amendment violation to the 2nd Circuit.
Overhaul of Regulating Commercial Speech
Although there was a unanimous majority decision that the law concerned a regulation of speech, there were concurrences in reasoning. Justice Breyer forewarned of the danger in allowing First Amendment protection to economic regulation: “I agree . . . [the] statute regulates speech. But that is because virtually all government regulation affects speech. Human relations take place through speech.” There has consistently been controversy regarding regulation of “commercial speech” and maintaining First Amendment rights of all parties involved. Should this be encompassed into constitutional protections?
Some have identified that Expressions’ holding is saving commercial free speech by creating a defining line that regulations for the communication of prices are considered speech regulations falling under the protections of the First Amendment and are distinguishable from regulation of conduct. This holding has ensured that legislators at all levels will not find it easy to restrict merchants’ speech in the future.
However, historically, First Amendment doctrine has given a wide authority to regulate speech protecting health and consumers. For example, think of the purpose of FDA regulations and the requirements companies are required to follow when advertising and promoting drugs. These regulations have never implicated First Amendment rights. This case has signaled a shift in First Amendment doctrine that has threatened historical regulatory powers. This holding could bring in to question the validity of several laws that implicate public health and consumer protection. If the New York statute is viewed as compelling or burdening speech, applying Central Hudson scrutiny to this type of commercial speech regulation, this would open the floodgates for judicial review of historical regulatory regimes that limit commercial speech essential to commercial conduct.
There are several statutes, at both the state and federal levels, which regulate the manner in which commercial speech may be expressed and would be at risk if subjected to heightened Central Hudson scrutiny. These regulatory statutes range from guiding: requirements regarding required disclosures and prohibited language binding creditors, private educational loans, and open-ended and closed-ended credit; requirements governing consumer credit advertising; requirements for auto sales disclosures; or requirements regulated by the Food and Drug Administration. There are “literally thousands” of regulations that require the disclosure of economically significant information, including “product labeling laws, environmental spill reporting, accident reports by common carriers, [and] SEC reporting as to corporate losses.” If courts allow the pricing regulation to become a speech restriction, then the judicial branch will be invited to practice policy making that should be left in the hands of the legislative branch. Judicial “[d]oubts concerning the policy judgements” guiding economic regulations “do not . . . justify reliance on the First Amendment” as a means to review these regulations.
Our Constitution has granted the political process to the legislative branch in order to regulate and create these laws that protect and regulate commercial speech. The courts are going beyond the judicial branch’s reach into the political realm of policy making and regulating. It is for the Circuit Court of Appeals now to decide whether or not there will be a flood of litigation, and then to decide whether to prevent regulatory overhaul and scrutinize these price regulation laws under a rational basis review.