On Wednesday, a federal appeals court in California ruled that this state’s law prohibiting businesses from charging customers extra for using credit cards violates free speech. California Civil Code Section 1748.1(a) had been effective since 1985. It prohibits businesses from imposing a surcharge on clients who pay with a credit card, but allows them to offer discounts for cash or check. So, the end result is the same, as long as the retailer calls it a discount rather than a credit card surcharge.
When the seller calls it a “discount” rather than a credit card surcharge, such a description is preferred by credit card companies. However, sellers do not like it because the prospect of avoiding a surcharge is more attractive to customers than getting a discount, even if the price is the same.
So, five California businesses sued in 2014, claiming the law violated the First Amendment by restricting commercial speech because it regulates how retailers can describe the price difference between cash and credit card purchases. They claimed the most effective way to encourage customers to switch from credit cards to cash is to emphasize the penalty associated with using credit cards by displaying a single price and charging an extra fee for credit card purchases.