Allowing customers to use credit cards at your store certainly boosts sales -- it's easy for customers to use, and they may be willing to pay more if they're not counting each dollar out of their wallet. But that doesn't necessarily mean it boosts revenue. Credit card companies charge retailers "swipe fees," sometimes as high as 3 percent per transaction.
While most retailers simply pass on this charge to consumers (in the form of higher prices), a New York law makes that illegal. So some Empire State retailers sued, claiming the regulatory scheme infringes on their First Amendment rights when labeling merchandise for sale. And the Supreme Court agreed, sort of. Here's a look.
New York General Business Law §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." But, nothing in Section 518 makes it illegal for retailers to give discounts to customers who don't use credit cards. Some retailers wanted to use a "single-sticker" pricing method, posting a cash price and an additional credit card surcharge, which courts ruled is illegal under Section 518.
A few of those merchants sued, claiming that a law that prohibited single-sticker pricing but allowed cash discounts was unconstitutionally vague. (In order for a statute to pass constitutional muster, a person of ordinary intelligence must be able to determine what persons are regulated, what conduct is prohibited, or what punishment may be imposed under the law.) And while the Supreme Court didn't quite agree that New York's surcharge law was too vague, it did say that it might violate retailers' free speech rights when it comes to communicating their pricing to customers.
In fact, the Court ruled that the retailers could not raise a successful vagueness claim because their speech had so clearly been curtailed. While a lower court dismissed the First Amendment issue, saying the law regulated conduct, i.e. pricing, and not speech, the Supreme Court ruled Section 518, "is not like a typical price regulation":
The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer. Instead, it regulates how sellers may communicate their prices. In regulating the communication of prices rather than prices themselves, §518 regulates speech.
Therefore, the case is heading back to the Second Circuit Court of Appeals, to determine whether Section 518 violates retailers' free speech rights.
All of this may sound purely academic, but when you consider that swipe fees can cost retailers and customers $50 billion a year, the issue becomes a little more real.