Update: Ninth Circuit Issues First Amendment Ruling on Credit-Card Surcharge Law

9thCirA post last month, Second Circuit Improperly Ducks Important First Amendment Issues, criticized the U.S. Court of Appeals for the Second Circuit’s decision to certify a question to New York’s highest court in a challenge to a state law restricting merchants’ ability to inform their customers of credit-card surcharges. WLF Chief Counsel Richard Samp argued that the court possesses all the information it needs to decide Expressions Hair Design v. Schneiderman. WLF filed an amicus brief in support of the petitioner in that case.

On January 3, the Ninth Circuit decided the same issue the Second Circuit had ducked involving an analogous law. The court found that a California law that prohibited merchants from imposing a surcharge to cover credit-card fees, but allowed them to provide discounts to cash customers, violated the First Amendment rights of five California businesses. Italian Colors Rest. v. Becerra.

The Second Circuit’s Expressions Hair case made it up to the U.S. Supreme Court last year, with the Court deciding only the threshold issue of whether the New York anti-surcharge law impacted speech. The Court held that the law regulates speech.

With that issue settled, the Ninth Circuit’s main task in Italian Colors was to evaluate California’s law under the Central Hudson test utilized in commercial-speech cases. The court first concluded that because merchants wanted to communicate, not conceal, the application of surcharges, the speech California’s law targeted was not false or misleading.

The court next examined the state’s interest and whether the law directly and materially advanced that interest. The law does not directly advance the state’s interest in preventing consumer deception, the court explained. Instead it does the opposite, by keeping credit-card consumers in the dark about why merchants are charging them more. The court also noted that the state presented no actual evidence that imposing or explaining surcharges posed economic dangers.

Finally, the court concluded that the law affected more speech than necessary to achieve the state’s goal. The state could have more directly targeted deceptive surcharges or could pursue unfair-business-practices actions against violators.

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