A District Court judge in Kansas has granted a plaintiff’s motion for summary judgment after it was sued by the state Attorney General for allegedly violating a state law that prohibits imposing a surcharge on transactions that are paid with a credit card, ruling that the law is an unconstitutional restriction on commercial speech in violation of the First Amendment.
A copy of the ruling in the case of CardX v. Derek Schmidt can be accessed by clicking here.
While the law in Kansas prohibits charging a surcharge for credit card transactions, it does permit merchants to offer discounts when a consumer pays for a transaction using cash.
The plaintiff is a payment processing company that uses patent-pending software to allow merchants to display the price of a good or service, plus the cost associated should the consumer choose to pay with a credit card. The surcharge is always equal to the merchant’s credit card processing charge and are applied to credit card transactions only, not debit cards.
The defendant attempted to make several arguments in favor of the law — that it encouraged businesses to charge lower prices by allowing cash discounts, it lowered the amount of credit card debt, and encouraged merchants to accept cash payments which allows them to pocket the money immediately instead of waiting for the credit card transaction to settle.
But Judge John Broomes of the District Court for the District of Kansas ruled that none of those arguments advances a substantial state interest, which is required in order to not be considered a violation of the First Amendment, under a Supreme Court precedent.
“Ultimately, Defendant has the unenviable task of attempting to justify a speech restriction that rests on little more than the State’s preferred manner of describing economic transactions,” Judge Broomes wrote. Whether the merchant says there is a discount for paying cash or a surcharge for paying via credit card targets nothing more than how the charge/discount is expressed. “This elevation of form over substance, which fails to directly and materially advance any substantial state interest, unjustifiably infringes on Plaintiff’s right to convey information to consumers in a way that truthfully and accurately describes the transaction and allows consumers to make an informed choice.”