Remember Reed: Might Supreme Court Apply it to Commercial Speech?

The question the Supreme Court will decide in Expressions Hair Design v. Schneiderman is whether state “no-surcharge” laws that prohibit vendors from charging more to credit-card customers but allows them to charge less to cash customers violates the First Amendment.

Here is why this case matters to local governments: An amicus brief filed on behalf of a number of retailers asking the Court to hear this case and overturn the Second Circuit decision argues that the Court should use this case as an opportunity to rule that strict (almost always fatal) scrutiny should apply to restrictions on commercial speech per Reed v. Town of Gilbert, Arizona (2015). In Reed the Supreme Court held that strict scrutiny applies to content-based restrictions on speech. In the Reed opinion, the Court did not extend its holding to the commercial speech context where states and local governments historically have had more latitude to regulate speech.

From 1976 to 1984 Congress prohibited vendors from passing on credit-card “swipe fees” (about 2-3 percent charged per transaction to merchants) to credit-card users. When the law expired eleven states, including New York, passed “no-surcharge” laws.

Per a “no-surcharge” law if the regular price of an item is $100 credit-card customers may not be charged $103 and cash customers $100. But if the regular price is $103 credit-card customers may be charged $103 and cash customers $100.

These laws were ignored until recently because credit card contracts with vendors prohibited vendors from imposing surcharges on credit-card customers. Visa and MasterCard have dropped this requirement in their contracts pursuant to a nationwide anti-trust lawsuit.

Expressions Hair Design would like to charge three percent more to credit card customers for its goods and services but is prohibited from doing so by New York’s “no-surcharge” law, Section 518. Expressions claims that Section 518 violates the First Amendment.

Expressions argues that Section 518 regulates speech. Merchants are allowed to characterize a price difference as a “cash discount” but not as a “credit-card surcharge.” So “cash discounts” are favored but “credit-card surcharges” are disfavored.

The Second Circuit disagreed concluding that the terms “cash discount” and “credit-card surcharge” are not mere labels. Section 518 regulates conduct and not speech—it prohibits a vendor from charging credit-card customers more than the sticker price. “What Section 518 regulates—all that it regulates—is the difference between a seller’s sticker price and the ultimate price that it charges to credit‐card customers.”