David R. Henderson  

Economic Freedom via Freedom of Speech

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To paraphrase the Eleventh Circuit, imposing a surcharge rather than offering a discount is no more misleading than calling the weather warmer in New Orleans rather than colder in San Francisco.

This is from the United States Court of Appeals for the Ninth Circuit decision allowing retailers to state they are charging a surcharge for use of credit cards rather than giving a discount for the use of cash.

Here's another excerpt from their decision:

Applying intermediate scrutiny, the panel held that the activity to which plaintiffs' desired speech was directed - charging credit card users more than cash users - was not unlawful or misleading. The panel held that enforcing section 1748.1 against plaintiffs did not directly advance California's asserted interest in preventing consumer deception. Finally, the panel held that there was no reasonable fit between the broad scope of Section 1748.1 and the asserted state interest, and therefore the statute was more extensive than necessary. The panel therefore agreed with the district court that Section 1748.1 violated the First Amendment, but only as applied to plaintiffs.

The plaintiffs were allowed to state that they gave a discount for using cash. But the California law prevented them from charging a surcharge for using credit cards. They argued that for a given set of prices those are equivalent and that they wanted to advertise a lower price, not a higher price.

Another excerpt:

It is obvious that the activity to which plaintiffs' desired speech is directed--charging credit card users more than cash users--is not unlawful. Cent. Hudson, 447 U.S. at 564. After all, Section 1748.1 permits cash discounts.

Additionally, the Attorney General does not articulate why plaintiffs' desired pricing scheme would be misleading. Plaintiffs can already charge credit card customers more than cash customers. They seek to communicate the difference in the form of a surcharge rather than a discount. To paraphrase the Eleventh Circuit, imposing a surcharge rather than offering a discount is no more misleading than calling the weather warmer in New Orleans rather than colder in San Francisco. Dana's R.R. Supply, 807 F.3d at 1249.


HT2 Phil Candreva.


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CATEGORIES: Law and Economics , Liberty




COMMENTS (4 to date)
robc writes:

Back when I had an alcohol sales license, one career ago, the state made it clear that I could sell drinks "2 for the price of 1"* but not "Buy 1 get one free".

Because you can't give away free beer.

*As long as that wasnt reducing the price below cost, which was another restriction.

Phil writes:

David - I think it is also worth mentioning on an Economics blog that the court devoted a paragraph (pages 6-7) citing the behavioral economics literature to make the case that the government's restriction had an effect on the market.

David R Henderson writes:

@Phil,
Yes. I meant to. It was in my scribbled notes on this and I forgot. IIRC, though, I thought the use, given the data, was bogus.

James Pass writes:

Phil, I'll take it one step further: According to the cited information on behavioral economics, it seems that credit card companies applied some political influence on creating the laws restricting surcharges. In other words, rent-seeking.

From what I understand, typical credit card processing fees range between 1.5 and 3.5 percent. But it's sort of funny because the only time I see discounts for cash, or surcharges for credit, are for gas purchases. I assume that is because gas stations operate at extremely low margins.

I can use my credit or debit card to purchase a fifty cent pack of gum at any large grocery store AND I can get a hundred dollars cash withdrawal without paying any surcharge or fee. Believe me, that's faster and cheaper than looking around for an ATM that charges a four dollar cash withdrawal fee. Perhaps over time I'll begin to see more kinds of businesses applying surcharges for cards.

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