A US district judge has blocked a New York state law banning surcharges against customers who use credit cards.
Judge Jed Rakoff ruled in favour of several retailers who were challenging the law on the basis that it breaches their freedom of speech under the First Amendment, by preventing them from educating customers about the extra cost of credit card payments.
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Rakoff said in his written decision: "The law perpetuates consumer confusion by preventing sellers from using the most effective means at their disposal to educate consumers about the true costs of credit-card usage.
"Even beyond the informational content of surcharges, sellers’ inability to effectively inform consumers of the true costs of credit has the effect of artificially subsidizing credit at the expense of cash, increasing overall credit-card usage and consumer debt."
Rakoff issued an injunction against the 1984 law being enforced while court proceedings continue. His decision could affect similar laws in up to nine other US states, including the four most densely populated states; California, Florida, New York and Texas.
Deepak Gupta, a partner at Washington law firm Gupta Beck, represented the merchants challenging the law. He said:
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By GlobalData"This is a big victory, not just for consumers and merchants in New York but across the country.
"The card industry wants to perpetuate the myth that using a credit card is free, or priceless. But the cost is baked into the price of all the goods and services we buy."
US retailers have long resented paying the so-called "swipe fees" they are charged by card networks like MasterCard and Visa. John Gleeson, a federal judge in Brooklyn, New York, is currently deciding a $7.2bn settlement between retailers, MasterCard and Visa over swipe fees.
Clay Calvert, a University of Florida professor and First Amendment specialist, said: "Rakoff is well-known and works in one of the most powerful district courts in the country. His reasoning could be very influential on judges in other courts considering similar laws elsewhere.
"This will make consumers more aware of the swipe fees that retailers pay, and if enough become more outraged, it could put pressure on lawmakers in Washington to cap the fees."
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Visa to sue Wal-Mart over swipe fee claims
