Whether merchants can charge consumers who pay with a credit card more and how that increase in price is described has been the subject of extensive litigation. According to a divided New York Court of Appeals, New York’s anti-surcharge law, which banned merchants from imposing a surcharge on credit customers, does not actually prohibit a merchant from charging more or characterizing the difference in price for cash versus credit as a “surcharge” as long as the total price for credit purchases is posted. As a result, retailers are free to call the higher price for credit whatever they want as long as consumers do not have to do math to figure out what that price is. The decision sets the stage for the law to be upheld against claims that it restricts commercial speech in violation of the U.S. Constitution.

In 2013, a group of retailers sued the New York Attorney General in the case Expressions Hair Design v. Schneiderman, alleging that New York General Business Law § 518 violates the First Amendment by permitting higher prices for credit card users while restricting the manner in which retailers may describe those prices. Specifically, the plaintiffs would like to use a “single-sticker” pricing scheme under which they would post a single price for cash or credit with an additional amount or percentage for credit purchases, for example, “$10 for a haircut, plus 3% if paying by credit card.”

The dispute went to the U.S. Supreme Court, which determined in 2017 that § 518 regulates speech (not prices), but remanded the case back to the Second Circuit for a decision on whether it impermissibly regulates speech. As in most First Amendment cases, the standard applied may be determinative. Courts reviewing First Amendment challenges can apply one of three standards: strict scrutiny applied to laws governing political speech; intermediate scrutiny applied to laws regulating commercial speech (“Central Hudson test”); or reasonableness for laws requiring purely factual disclosures reasonably related to the State’s interest in preventing deception of consumers (“Zauderer test”).

Section 518 states simply 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.” To assist it in making the decision of what standard to apply, the Second Circuit asked the New York Court of Appeals to rule on whether “a merchant compl[ies] with [§ 518] so long as the merchant posts the total dollars and cents price charged to credit-card users.” Foreshadowing its eventual ruling, the Second Circuit stated, “If Section 518 forces a merchant to disclose an item’s credit‐card price, without otherwise either barring the merchant from (a) implementing (and describing to customers) a pricing scheme that differentiates between payments by credit card and cash or (b) conveying to its customers other information the merchant finds relevant, then Zauderer might apply.”

A majority of the Court of Appeals held that “imposing a surcharge … and using the word ‘surcharge’ are two different things.” The majority thus determined that as long as the total price for credit card purchases is posted and consumers are not required to “engage in arithmetical calculation,” § 518 does not prohibit a merchant from explaining the price difference as a “surcharge.”

Three of the seven justices disagreed with the majority opinion, including one dissent that argued the majority’s interpretation of § 518 as a price disclosure requirement was facially inconsistent with the statutory text. As the dissent notes, under the majority’s reading, a merchant could, for instance, post a sign proclaiming it “IMPOSES A SURCHARGE” as long as the credit card price is posted somewhere. “In other words, the majority’s reading enables a merchant to comply with the statute while explicitly purporting to violate it.”

Thus, according to the New York Court of Appeals, a retailer may charge a higher price for credit purchases and even characterize it as a “surcharge,” as long as the merchant does not use the single-sticker pricing regime that plaintiffs favored. For example, “$10 for a haircut, plus 3% if paying by credit card…” is not permitted, unless “…for a total of $10.30” is added, because otherwise consumers would be required to do math. This ruling paves the way for the Second Circuit to follow the more lenient Zauderer standard and to ultimately uphold § 518 as constitutional (and enforceable). That outcome would be at odds with decisions in other Circuits striking down anti-surcharge laws and may result in the issue returning to the U.S. Supreme Court. And you thought math was hard.