Five merchants and their principals have filed a lawsuit in federal district court in New York challenging the constitutionality of a state law that prohibits merchants from imposing a surcharge on credit card purchases. New York is one of 10 states with such “no surcharge” laws.

Although the federal ban on credit card surcharges expired in 1984, merchants were still prohibited from imposing surcharges by contractual rules imposed by MasterCard and Visa. That prohibition ended earlier this year, however, as required by the terms of the national settlement of the numerous class actions filed against MasterCard and Visa. Those class actions were filed by merchants alleging that the companies had engaged in anticompetitive behavior in setting credit card interchange rates. Accordingly, “no surcharge” state laws, such as the New York law challenged in the new lawsuit, are the only remaining obstacle to surcharges for merchants accepting MasterCard and Visa credit cards. A violation of New York’s law is a criminal offense, punishable by a $500 fine and up to one year of imprisonment.

The lawsuit alleges that New York’s law is a restriction on speech that violates the plaintiffs’ First Amendment rights because it does not allow merchants to tell customers that they are paying more for using credit than for using cash or another payment method. The complaint acknowledges that New York law permits merchants to offer a discount to customers for not using credit. The plaintiffs claim, however, that labeling the  price differential between a cash and credit purchase as a “discount” rather than a “surcharge” is less effective in communicating to customers that credit cards are a more expensive means of payment and therefore less likely to deter a consumer from using credit.

The plaintiffs also allege that the law violates the Due Process Clause of the Fourteenth Amendment because it does not provide guidance on what speech is prohibited, and therefore “makes criminal liability turn on the blurry difference” between what constitutes a “surcharge” and what constitutes a “discount.” The complaint references a 1987 New York City Criminal Court decision that dismissed the charge and set aside a conviction under the law. The court found that that the statute was unconstitutionally vague for the same reason asserted by the plaintiffs.

The plaintiffs further allege that the law is preempted by the Sherman Act because it insulates credit card companies from competition by allowing them “to keep the costs of credit hidden from consumers by preventing merchants from communicating these costs in an effective manner.”

press release issued by the plaintiffs’ counsel indicates that the New York lawsuit is expected to be followed by challenges to the “no surcharge” laws of the other nine states. Those states are California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, and Texas.

Ballard Spahr attorneys are available to advise credit card and prepaid card issuers on compliance with applicable consumer financial services laws. Our Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or, CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or, John L. Culhane, Jr., at 215.864.8535 or, or Glen P. Trudel at 302.252.4464 or




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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


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