Customers may be surcharged for using a credit card—but only as long as no calculations are required to figure out what would be saved by using cash—the New York Court of Appeals said Tuesday in its answer to a question about the state's General Business Law posed by the federal courts.

The New York court said merchants' commercial free speech rights were not infringed by the restriction placed on informing patrons of differential pricing.

Five merchants sued New York state in federal court, arguing that the state law disallowing them from quoting the surcharge as a percentage of customers' purchases was a violation of speech rights under the First Amendment. The suit was begun in 2013.

(For example, a merchant might post that users who pay for a haircut listed at $10 with a credit card would be charged an additional 3 percent. Customers who paid with cash would be charged the flat fee of $10.)

The parties agreed that credit card user surcharges, or differential pricing, is allowed under New York law. The litigation, instead, centered on how merchants can communicate their pricing policies.

The plaintiffs, led by Expressions Hair Design in Broome County, were represented by Deepak Gupta, founding principal of Gupta Wessler in Washington, D.C. Gupta did not immediately return a call for comment.

The plaintiffs argued in their complaint that they should be able to simply say customers will be charged an additional percent on top of their bill for a product or service. They said not allowing them to display pricing that way violated their free speech rights.

The U.S. Supreme Court said last year the state law, General Business Law Section 518, implicates the First Amendment but sent the case back to the U.S. Court of Appeals for the Second Circuit to evaluate the law as a restraint of speech.

That court then tasked the New York Court of Appeals with a question about the law: “Does a merchant comply with New York's General Business Law § 518 so long as the merchant posts the total dollars‐and‐cents price charged to credit-card users?”

The answer is yes, according to the majority opinion written by Associate Judge Eugene Fahey.

“We conclude that a merchant complies with GBL § 518 if and only if the merchant posts the total dollars-and-cents price charged to credit card users,” Fahey wrote. “In that circumstance, consumers see the highest possible price they must pay for credit card use and the legislative concerns about luring or misleading customers by use of a low price available only for cash purchases are alleviated.

“To be clear, plaintiffs' proposed single-sticker pricing scheme—which does not express the total dollars-and-cents credit card price and instead requires consumers to engage in an arithmetical calculation, in order to figure it out—is prohibited by the statute,” Fahey continued.

Under the New York law, therefore, merchants may post different prices for customers using a credit card as long as the math is already done for the buyer.

(A merchant selling a $10 haircut can tell credit card customers they will instead be charged $10.30, but they cannot simply say the cost will be 3 percent more, according to the decision.)

That opinion is in line with an expired federal statute on the same issue, Fahey wrote. A section of the 1981 Cash Discount Act allowed merchants to post two different prices for one product or service, Fahey wrote, as long as the customer was “exposed to the highest price when they see a tagged or posted price,” according to the decision.

“The effect of the 1981 amendment was to explain the statute's significance: a merchant who displayed two-sticker pricing, in which the total credit card price in dollars-and-cents form was listed alongside the cash price, would comply with the federal statute, as would a merchant who displayed only the higher, credit card price,” Fahey wrote.

On the other hand, he said, a merchant who displayed the total price in dollars and cents for the cash price—but not the credit card price—would be in violation of the federal law. The state law was intended for the same purpose, Fahey wrote.

“In light of this legislative history, we conclude that GBL § 518, like its federal precursor, permits differential pricing but requires that a higher price charged to credit card users be posted in total dollars-and-cents form,” Fahey wrote. “In that way, credit card customers are 'exposed to the highest price when they see a tagged or posted price' and, without further ado, apprehend the actual price they will pay.”

Fahey also said that merchants can call the higher price for credit card users a surcharge, which Associate Judge Michael Garcia disagreed with in a dissenting opinion.

The law in question states that “No 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.” Garcia said the Legislature intended for that to mean merchants may call the different price for cash customers a “discount,” but cannot call the higher price for credit card customers a “surcharge.”

Garcia said in his dissent that the majority's interpretation of the law contradicts the language of the statute.

“The merchant could, for instance, post a sign proclaiming that he 'imposes a surcharge,' or tell credit-card customers at the register that their price 'contains a surcharge'—all contrary to the statutory text—so long as the credit-card price is somewhere posted,” Garcia wrote. “In other words, the majority's reading enables a merchant to comply with the statute while explicitly purporting to violate it.”

Garcia was the only judge who said he would have answered in the negative to the question posed by the Second Circuit. Chief Judge Janet DiFiore and Judges Leslie Stein and Paul Feinman concurred with Fahey's opinion. Judge Jenny Rivera concurred, but in a separate opinion, and Judge Rowan Wilson concurred in part and dissented in part.

A spokeswoman for the state Attorney General's Office did not immediately return a request for comment on the Court of Appeals decision Tuesday.

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