Thursday, October 25, 2018

Cents and sensibility: NY Ct of Appeals weighs in on credit surcharge law

Expressions Hair Design v. Schneiderman, --- N.E.3d ----, 2018 N.Y. Slip Op. 07037, 2018 WL 5258853 (Oct. 23, 2018)

GBL section 518 states: “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.” This allows differential pricing, but the circumstances under which that’s allowed are hotly disputed. The Second Circuit certified a question: “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 court here answered yes (meaning that the merchant can use the label "surcharge" to describe the practice, but can't use percentages to describe the extra amount being charged for credit.)

Plaintiffs wish to tell their customers, for example, that “a haircut costs $10.00, and if you pay with a credit card you will pay 3% extra” or “a haircut costs $10.00, and if you pay with a credit card you will pay an additional 30 cents.”  The legislative history of the defunct federal version of the statute is paradigmatically concerned with “a completely undisclosed surcharge, discovered at the cash register.” It also operated to ensure “that consumers will be seeing at least the highest possible price they will have to pay when they see a tagged or posted price.” “GBL § 518’s legislative history demonstrates the identical concerns Congress had: a desire to allow differential pricing, but to avoid the duping of customers by posting or tagging low prices that turn out to be available for cash purchases only.”

Thus, the court concluded, 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. 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. By contrast, single-sticker pricing would require a consumer to engage in arithmetic, which may be difficult depending on the cash price, in order to calculate the actual price for a credit card purchase.” I would say, and the majority seems to agree, that this is a disclosure rule, mandating “purely factual and uncontroversial disclosures regarding the product it is offering for sale.” This is significant because of what will happen in federal court: sellers shouldn’t be able to get Central Hudson’s harsher scrutiny just by positing another way they’d like to make the disclosure, especially when there’s a sensible reason (many consumers’ difficulty with math/difficulty making absolute to percentage comparisons) for the state’s decision.

As cleanup, the court held that, as long as the total dollars-and-cents price for credit card purchases was posted, merchants can use “surcharge” to describe the difference in price, because they won’t be imposing a surcharge as the law defines it (which is to say, a charge imposed without dollars-and-cents disclosure). Posting the dollars-and-cents price for credit card purchases means that “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.” Plaintiffs’ proposed single-sticker price, by contrast, was prohibited by the statute.

There was also a concurrence, a partial dissent, and a dissent.  The concurrence would have held that “all conduct complies with the law, because the law is unconstitutionally vague, and therefore cannot reasonably be said to prohibit anything.”  The dissent would have held that GBL § 518 isn’t a disclosure statute, but a law that regulates the seller’s description of differential pricing and bars credit card “surcharges” but not cash “discounts” because of the credit card industry’s interest in manipulating consumers’ decision framing.  A true disclosure requirement, the dissent thought, would have more requirements on how the requisite information has to be presented (e.g., type size). For this reason, the NY AG has historically used other laws targeting deceptive business practices and false advertising to fight undisclosed surcharges and similar bait-and-switch tactics.  “Under the majority’s disclosure-centric reading, GBL § 518 is effectively redundant of these existing provisions,” and similarly undermining its consumer protection goals, government entities are apparently exempt from GBL § 518 in many situations.  

I think the point about government treating itself better than other entities is a good one, but the redundancy point is mistaken: many other states' unfair trade practices laws list specific practices that are prohibited because of how likely they are to harm consumers through deception alongside a general prohibition on deceptive practices.  The point of having a specific prohibition is to relieve the state of the burden of showing likely deception in a specific case, given how likely it is that deception is to result, the lack of justification for the practice, and the costs and error risks of individualized determinations.  One could compare speed limits + dangerous driving prohibitions.  The general ban deals with the infinite capacity of fraudsters to invent new schemes, but the specific prohibitions provide clear guidance for situations that experience has shown are likely to be repeated.

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