California Credit Card Surcharge Law Held Unconstitutional

By Chris Bruce

A federal appeals court Jan. 3 said a California law that bars merchant surcharges on credit card transactions violates the U.S. Constitution.

The ruling by the U.S. Court of Appeals for the Ninth Circuit means that five California businesses that challenged the law may post a single sticker price on items for sale while charging an extra fee for customers who wish to pay by credit card. Although a lower court went further and struck down the law in its entirety, the Ninth Circuit said its decision only applies to the plaintiffs in this case.

The ruling followed a March U.S. Supreme Court decision that said a New York anti-surcharge law regulates speech. In this case, California Attorney General Xavier Becerra defended the California law, found at Section 1748.1 of the California Civil Code, saying it regulates conduct, not speech. However, the Supreme Court ruling “forecloses” that argument, the three-judge Ninth Circuit panel said. The opinion was written by Judge Sarah S. Vance, a judge sitting by designation who normally presides in the U.S. District Court for Eastern District of Louisiana.

“In sum, Section 1748.1 restricts plaintiffs’ non-misleading commercial speech,” said Vance, joined by Judges Diarmuid F. O’Scannlain and Johnnie B. Rawlinson. “This restriction does not directly advance the Attorney General’s asserted state interest in preventing consumer deception, nor is it narrowly drawn to achieving that interest.”

The separate dispute on the New York surcharge law is ongoing. After deciding the questions before it in March, the Supreme Court sent the case back to the Second Circuit. In December, that court asked New York’s highest court whether merchants meet the requirements of New York General Business Law Section 518 if they post the total-dollars-and-cents price charged to credit card users. The New York Court of Appeals doesn’t have to answer the question. Even if it does so, its answer will carry significant weight but won’t be binding on the Second Circuit.

Case: Italian Colors Restaurant v. Becerra , 9th Cir., 15-cv-15873, 1/3/18 .

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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