Supreme Court Considers Role of Free Speech in Explaining Credit Card Fees

WASHINGTON — At a lively Supreme Court argument on Tuesday, the justices considered how the First Amendment applies to credit card fees.

The case was the latest battle in a continuing dispute between some merchants, who want to avoid fees charged by credit card companies by steering customers toward cash, and credit card companies, which seek to make the fees invisible to consumers.

The New York law at issue in the case, similar to ones in nine other states, bars merchants from imposing surcharges when their customers use credit cards. Discounts for using cash, on the other hand, are permitted.

That distinction runs afoul of the First Amendment, said Deepak Gupta, a lawyer for several merchants challenging the law.

“This case is about whether the state may criminalize truthful speech that merchants believe is their most effective way of communicating the hidden cost of credit cards to their customers,” Mr. Gupta said. Credit card companies charge a so-called swipe fee, often ranging from two to three percent of the transaction, to merchants who accept their cards.

The justices’ view of the case seemed to turn on where they stood in a rolling debate at the court about how the First Amendment applies to laws regulating economic matters, an issue that generally divides the justices along ideological lines.

Some of the more liberal justices said that the law was an unexceptional and permissible economic regulation.

“What this statute says is, you can’t impose a surcharge,” Justice Stephen G. Breyer said. “Very well, you can’t.”

“What’s that got to do with speech?” he asked.

“If you look at this statute,” Mr. Gupta conceded, “it doesn’t scream First Amendment.”

“But this is a regime,” he added, “that says you are allowed to call it a surcharge, you just can’t call it a discount.”

Some of the more conservative justices saw a threat to free speech. “They are forcing the merchant to speak in a particular way,” Justice Samuel A. Alito Jr. said.

Justice Anthony M. Kennedy seemed to agree. “It’s a matter of how the pricing structure is communicated in the speech,” he said.

Steven C. Wu, a lawyer for the state, said it was free to require merchants not to exceed an announced price. “The First Amendment doesn’t prohibit the state from using a previously conveyed price as a baseline for a price regulation,” he said.

Much of the argument concerned a semantic and psychological puzzle. As an economic matter, the prohibited surcharges and permitted discounts are identical. But as a matter of behavioral science, people resist the former and embrace the latter.

“A discount and a surcharge are the same thing economically,” Justice Breyer said. “But we live in a world in which not everyone is an economist.”

Eric J. Feigin, a lawyer for the federal government, said the New York law would not violate the First Amendment if it barred a deli from saying that it charges credit card users a little more. The hypothetical example came from a brief in the case, which posed the question of whether it would violate the law to charge $10 for a pastrami sandwich, adding a 20 cent surcharge for using a credit card.

Chief Justice John G. Roberts Jr. said that position was patronizing.

“You’re saying that the American people are too dumb to understand that if you say $10 plus a 20-cent surcharge,” he said, “they can’t figure out that that’s $10.20.”

The New York law, enacted in 1984, makes it a crime to impose a surcharge for the use of credit cards. The law was for many years almost irrelevant, as credit card companies imposed similar rules in their merchant contracts.

But credit card companies started to back away from those restrictions as part of class-action settlements which continue to be litigated. Not long after, several New York merchants sued to challenge the law on First Amendment grounds.

One of them, Expressions Hair Design — one of the five plaintiffs in the Supreme Court case — said that it wants to tell its customers that it charges three percent more for using a credit card but fears criminal prosecution.

“It really is a freedom of speech issue,” said Valerie Bandurchin, an owner of the hair salon, who attended Tuesday’s arguments.

She said the salon had taken down a sign announcing a surcharge but would put it back up if her side won. While it was in place, she said, customers took the fee in stride. “We’re not dealing with thousands of dollars here,” she said. “It’s small amounts of money. When they realized the surcharge was $2 or such, they didn’t seem to care.”

Justice Breyer, returning to a theme that has engaged him in recent years, said he was alarmed that the court could use the First Amendment to strike down ordinary economic regulations.

He said he feared a return to the era of Lochner v. New York, referring to a 1905 decision that overturned a work hours law in New York and has become shorthand for improper interference with matters for to legislatures.

Justice Breyer said he would have voted against the law had he been a legislator. But he added that judges should leave such matters to elected lawmakers.

“The fact that you have the questions you’ve had, and both sides of the bench have had such trouble with this, is strong evidence that the court should stay out of this under normal First Amendment standards,” he told Mr. Wu.

The eight-member court, fearing a deadlock, may look for a narrow way to decide the case, Expressions Hair Design v. Schneiderman, No. 15-1391. One alternative, proposed by Justice Alito, would be to ask New York’s highest court for a definitive interpretation of the state law.