Amicus Curiae Brief — Expressions Hair Design v. Schneiderman, 137 S. Ct. 30 (2016) (No. 15-1391)

DEC 2 1 2016

NO. 15-1391

In the

Supreme Court of the United States

EXPRESSIONS HAIR DESIGN, et al.,

Petitioners,

Vv.

ERIC T. SCHNEIDERMAN, in his official capacity

as

Attorney General of the State of New York, et al.,

Respondents.

On Writ of Certiorari to the United States Court

of Appeals for the Second Circuit

BRIEF FOR AMICUS CURIAE

NEW YORK CREDIT UNION ASSOCIATION

IN SUPPORT OF RESPONDENTS

-_ —— _

as ee

HENRY C. MEIER

Counsel of Record

MICHAEL R. LIEBERMAN

NEW YORK CREDIT UNION ASSOCIATION

1021 Watervliet Shaker Road

Albany, NY 12205

(518) 437-8144

Henry.meier@nycua.org

DECEMBER 21, 2016

8

TABLE OF CONTENTS

TABLA OF AUST RRARIs © BOD sc scisessvcsascnctssivdcniacycarntins Ni

STAT INGESET Ee COE BIW 8 MOET E ov ccecensasescpesvavesaasenceddonee ]

DUE PEI RF Gs 6 BRE seis sscevenenessnscassncesancapeniaetens aReaeene aie 2

SUMMARY OF ARGUMENT .....ccccssscosserevenscestssanséeees 6

PSPAIOEEREN L 50005000sesersekecssevesscentsscanntereOnapeieucanantiane 7

|. Surcharge bans provide states the most effective

means of protecting consumers against excessive

CHOGEE COTS COBB. ives osincncsscnssnvsscccscevacsousnavtestalensnenemanes 7

A. [In countries where they are authorized,

surcharges inevitably become a source of

merchant revenue instead of a mechanism to

TOCOUD trANBACEAON COGED. ccciesccsaveisocdenssenasstsunnuascans )

3. Merchants exercise monopoly control over

how large a surcharge consumers pay. ............+. 13

C. Credit card surcharges promote misleading

pricing tactics and dubious marketing schemes

that exploit among the most powerful of pricing

BIRIOD. nnn sccesconseveuseicnveescskdeses bivdakehieeeieree nanan 15

1), Banning “excessive surcharges’ will not

protect consumers from the negative

consequences of surcharging. ..............cccceeceeeeeees 17

i. The legislative history of section 518

demonstrates that New York anticipated the

negative consequences of surcharging

experienced in other countries. ........00..c6.cceeeeeees 19

il

Il. SECTION 518 DOES NOT TRIGGER FIRST

AMENDMENT PROTECTIONS. 00000000000... -ccccceceecees 20

A. New York General Business Law section

518 imposes a ban on credit card surcharges

above the headline price. ....................cccccececeeeceee 20

B. Consumers do not construe pricing as

merchant expression. .......................ce.ccesessscssoeese 21

Neen eednouss soee 4

ili

TABLE OF AUTHORITIES

Cases

City of Dallas v. Stanglin, 490 U.S. 19 (1989)......0..-.0000--. 18

City of New Orleans v. Dukes, 427 U.S. 297 (1976)............. 7

Expressions Hair Design v. Schneiderman, 975 F. Supp.

| SE eenjunieaviilonniasinttidbatipeientiibtitaninees 4

Giboney v. Empire Storage & Ice Co., 336 U.S. 490

Fee iiireisinsss-snimcisitinipcesevigtitetenephataiunpiabatudeadepusinieraendsighediadiiaasectas 18

Mobile Oil Exploration & Producing Se. Inc. v. United Distrib. Cos.,

SF I IEE cerhecernnnasscnincieatstenibintleabinaiddeniactmatls hicuiin esta ice 7

Nebbia v. New York, 291 U.S. 502 (1984) .........cccccccececceceeceves 7

Nev. Comm'n on Ethics v. Carrigan, 564 U.S. 117 (2011)19

People v. Fulvio, 514 N.Y.S.2d 594 (N_Y. Crim. Ct.

I ahi canada adr eee 17

Spence v. Washington, 418 U.S. 405 (1974) .oocccccccceccececeeee 18

Texas v. Johnson, 491 U.S. 397 (1989) .....ccccccccccccecceseseeeeeees 18

Tinker v. Des Moines Ind. Comm. School District, 393

i UN i i a 18

Welsh v. United States, 398 U.S. 333 (1970) .........cccccccceseeeees 4

Statutes

N.Y. GEN. Bus. LAW § 399-zzz (McKinney 2016)............... 18

NYLS’ Governor’s Bill Jacket to ch. 160, S. 8367, Assemb.

Sey G0 te

iv

Other Authorities

Adam J. Levitin, Priceless? The Economic Costs of Credit

Card Merchant Restraints, 55 UCLA L. REV. 1321

FEDERAL RESERVE SYSTEM, THE 2013 FEDERAL RESERVE

PAYMENTS STUDY: RECENT AND LONG-TERM TRENDS IN

THE UNITED STATES: 2000-2012 (2014), available at

https://www.frbservices.org/files/communications/pdf/ge

neral/2013_fed_res paymt_study_detailed_rpt.pdf......13

Feedback statement on European Commission Green

Paper, Towards an integrated European market for

card, internet and mobile payments, COM (2011) 0941

final (June 27, 2012), available at

http://ec.europa.eu/internal_market/payments/docs/cim/

gp_feedback_statement_en.pdf6u...........cceccccescccceseeceeceesecees 16

Letter from Gerard Brody, Dir., Policy and Campaigns,

and David Leermakers, Senior Policy Officer, Consumer

Action Law Ctr. to the Reserve Bank of Aust]. (Feb. 9,

2012), available at http://consumeraction.org.au/wp-

content/uploads/2012/04/A-Variation-to-Surcharging-

ERIS REESE Wa Pett PMY Se PR ALT MEE 12

OFFICE OF FAIR TRADING (U.K.), THE IMPACT OF PRICE

FRAMES ON CONSUMER DECISION MAKING 21—25 (2010),

available at

http://webarchive.nationalarchives.gov.uk/20140402142

Vv

426/http:/www.oft.gov.uk/shared_oft/economic_research

FT I a ececciecccttsccocevsccersnscesessensseminssnssonnsgiantestmesessorsconners 14

RESERVE BANK OF AUSTRALIA, GUIDANCE NOTE:

INTERPRETATION OF THE SURCHARGING STANDARDS

(2012), available at http://www.rba.gov.au/payments-

and-infrastructure/cards/201211-var-surcharging-stnds-

guidance/guidance-note. html ..........-..:ssseesceeeeenesceenneeteres 12

RESERVE BANK OF AUSTRALIA, REVIEW OF CARD

PAYMENTS REGULATION: CONCLUSIONS PAPER 14—15

(2016), available at http://www.rba.gov.au/payments-

and-infrastructure/review-of-card-payments-

regulation/pdf/review-of-card-payments-regulation-

conclusions-paper-2016-05. pdf...........cesceseseneeerenereneneeees 12

Laws of Foreign Jurisdictions

Directive 2011/83, of the European Parliament and of the

Council of 25 October 2011 on Consumer Rights, art.

19, 2011 O.0. (L394) 64 (EU).........0.-ccccscorsseeresseenseeerrenessnees il

Directive 2015/2366, of the European Parliament and of

the Council of 25 November 2015 on Payment Services

in the Internal Market, 2015 O.J. (337) 35 (EV) ........ 10

Impact Assessment, Proposal for a Directive of the

European Parliament and of the Council on Payment

Services in the Internal Market and Proposal for a

Regulation of the European Parliament and of the

v1

Council on Interchange Fees for Card-Based Payment

Transactions, SWD (2013) 0288 final (July 24, 2013)..11

Impact Assessment: Payment Surcharges

EE RSL DIES SHRM EASE PISA SLO nee ey ayn ooo 10

Michele Bullock, A Guide to the Card Payment System

Reforms, RBA BULLETIN, Sept. 2010 ........ccccccccessseereereees 11

Report from the Commission to the European Parliament

and the Council on the Application of Directive

2007/64/EC on Payment Services in the Internal

Market and on Regulation (EC) No. 924/2009 on Cross-

Border Payments in the Community, COM (2013) 0549

eh BE Bk. Ce oescncicncenssccnshemenneinionanctinianintiateannseten BO

RESERVE BANK OF AUSTRALIA, A VARIATION TO THE

SURCHARGING STANDARDS: A CONSULTATION

I I oi cscaiusinssam ornmninniitgieecsonmnancsied 11

Reserve Bank of Australia, Standard No. 3 of 2016,

Scheme Rules Relating to Merchant Pricing for Credit,

Debit and Prepaid Card Transactions s 4, available at

http://www.rba.gov.au/payments-and-

infrastructure/review-of-card-payments-

regulation/conclusions-paper-may2016/appendix-

The Consumer Rights (Payment Surcharges) Regulations,

I a: ee i Ea il incon cecctecnsstcisierinssiesnadlideoeneneniin 10

1

STATEMENT OF INTEREST

The New York Credit Union Association is a

century-old institution dedicated to advancing and

protecting the interest of credit unions.' Credit

unions are member owned not for-profit cooperatives

which, unlike banks, cannot rely on stocks to increase

their capital.

The outcome of this case may have a direct

financial impact on New York credit unions,

approximately half of whom offer credit cards and

receive interchange income.

! All parties have consented to the filing of this Brief. Such

consents shall be submitted herewith. No counse! for a party

authored this brief in whole or in part. and no counsel or party

made 4 monetary contribution intended te fund the preparation

or submission of this brief. No person other than amtcus

curiae, its members, or its counsel made a monetary

contribution to its preparation or submission.

2

INTRODUCTION

State no-surcharge laws regulate economic

conduct and do not unconstitutionally restrict speech

conveying price information.

The opinion of the District Court below begins

quite colorfully with a refercace to Lewis Carroll’s

Through the Looking Glass. Expressions Hair Design

v. Schneiderman, 975 F. Supp. 2d 430, 435 (2013)

(“Alice in Wonderland has nothing on section 518 of

the New York General Business Law.”). Petitioners

and Humpty Dumpty share something in common:

they both believe that words mean only what they

want them to mean. See LEWIS CARROLL, THROUGH

THE LOOKING-GLASS, AND WHAT ALICE FOUND THERE

124 (1871) (“When J use a word,” Humpty Dumpty

said, in rather a scornful tone, “it means just what I

choose it to mean—neither more nor less.” “The

question is,” said Alice, “whether you can make words

mean so many different things.”).

In this case, petitioners have decided that

“surcharge” and “discount” have the same meaning

because, in some cases, either mechanism can result

in the same price. Amicus urges the Court’s caution,

for “[u]nless we are to assume an Alice-in- Wonderland

world where words have no meaning,” Welsh v. United

States, 398 U.S. 3338, 354 (1970) (Harlan, J.,

concurring), the very real differences between

surcharges and discounts and their divergent

economic and social implications, and New York’s

decision to permit the latter while forbidding the

former, should be respected.

3

The New York State Legislature passed New York

General Business Law Section 518 based on the

understanding that surcharges and discounts are in

fact separate and distinct pricing mechanisms, and

not merely two words for the same conduct. The state,

in a valid exercise of its police power, determined that

it was in the public interest to prohibit a merchant

from imposing a surcharge above the headline price

on a consumer who chooses to pay with a credit card.

It does not prohibit merchants from describing their

pricing structures in their own words, or from

engaging in advocacy regarding their desire to charge

more to consumers who pay with credit cards.

In other words, section 518 regulates what

merchants may do, not what they may say. This is

clear from the plain meaning of the statute, and any

argument to the contrary consequently must fail.

Moreover, the effects of surcharging are no longer

confined to the realm of economic speculation.

Australia, the European Union, and the United

Kingdom have all either eliminated or severely

restricted the use of merchant surcharges in recent

years. These developments have been prompted by

mounting evidence that surcharging does not provide

a mechanism to recoup merchant transaction costs,

but instead constitutes a source of revenue derived

from consumers who have no way to ascertain the

actual cost of credit.

Take, for example, the pricing structure that

Petitioner Expressions Hair Design employs.

Expressions Hair Design charges customers a three-

4

percent surcharge over the headline price for

customers who choose to pay for their haircuts with

credit cards. J.A. 60; Pet. Br. at 20. Although they

claim to have changed their signage after learning of

the law in question, they apparently have not changed

this price structure. See Pet. Br. at 20; J.A. at 60-61.

Therefore, Expressions Hair design imposes a three-

percent surcharge on consumers who pay with credit

cards, even though their actual costs of accepting

those cards may significantly less in many cases.”

Consumers have no way of knowing’ what

Expressions’ actual costs of card acceptance are, and

they have no way of knowing that part of the

“surcharge” is actually just increased revenue,

unrelated to the cost of accepting credit.

The state’s compelling interest in shielding

consumers from the harm that results from credit card

surcharging, as evidenced by the examples of other

countries, cannot reasonably be questioned.

Petitioners argue that the First Amendment prohibits

states from banning surcharges while simultaneously

authorizing cash discounts; but no-surcharge laws are

economic regulations that do not infringe on

merchants’ rights of Free Speech, and petitioners

cannot invoke the First Amendment to accomplish in

the Supreme Court what must be done in the

chambers of Congress or state legislatures.

2 See Merchant Processing Fees in the U.S., NILSON REPORT,

May 2014, at 12, available at

https://www.nilsonreport.com/upload/issues/1041 0002.pdf

(Noting that the average credit card acceptance fee for all Visa

and MasterCard cards was 2.17% in 2013).

5

In this case, petitioners have draped their

challenge to a valid economic regulation in the garb of

Free Speech, a masquerade designed to achieve in

Court what must be done in Congress or state

legislatures. It is a clever but disingenuous means of

allowing large retailers to maximize profits at the

expense of consumers.

It trivializes the very freedom protected by the

first amendment.

Accordingly, the Court should affirm the

judgment of the Second Circuit and hold that New

York’s no-surcharge law regulates economic conduct,

not speech.

6

SUMMARY OF ARGUMENT

New York General Business Law section 518

prohibits merchants from charging more than the

headline price for purchases made with a credit card,

while permitting merchants to offer cash discounts.

N.Y. GEN. Bus. LAW § 518 (McKinney 2016). It is a

classic regulation of economic activity. The

petitioners contend that section 518 serves no

legitimate purpose. To contrary, section 518 serves to

protect consumers and the economy.

In fact, Australia, the European Union, and the

United Kingdom have all authorized surcharging,

only to subsequently eliminate or restrict its use.

Their experience demonstrates that if New York’s law

is struck down, consumers will be forced to pay

surcharge fees far in excess of merchant transaction

costs. Furthermore, existing statutes banning unfair

and deceptive practices will not be sufficient to

prevent excessive charges.

Furthermore, section 518 question does not

violate the first amendment because it does not

regulate speech. It regulates economic conduct.

Therefore, the judgment of the court of appeals should

be affirmed.

7

ARGUMENT

I. Surcharge bans provide states the most

effective means of protecting consumers

against excessive credit card costs.

The Court’s “decisions abound with cases in which

the citizen, individual or corporate, has vainly invoked

the Fourteenth Amendment in resistance to necessary

and appropriate exertion of the police power.” Nebbia

v. New York, 291 U.S. 502, 525 (1934). This case is no

different. And like the cases that have come before it,

Petitioners attempt to strike down a valid regulation

of economic conduct on First and Fourteenth

Amendment grounds should not succeed.

It is well-settled that “|s]tates are accorded wide

latitude in the regulation of their local economies

under their police powers.” City of New Orleans v.

Dukes, 427 U.S. 297, 303 (1976). Regulations of

economic conduct, specifically those regulating pricing

activity, have existed in the United States “from its

first colonization,” Munn v. Illinois, 94 U.S. 113, 125

(1876), and the Court has consistently upheld such

laws under rational basis review. See, e.g., Mobile Oil

Exploration & Producing Se. Inc. v.

United Distrib. Cos., 498 U.S. 211, 221-26 (1991)

(upholding taw regulating the price of natural gas);

Nebbia, 291 U.S. at 537 (upholding law fixing milk

prices). Notably, such laws have never before been

held to unconstitutionally restrict speech. Rather,

they have been upheld as valid regulations of

economic conduct.

Petitioners’ First Amendment argument, as

augmented by amici, suggests that there is no

8

justification for section 518 other than to protect the

interests of credit card companies. See Brief of

Petitioner (“Pet. Br.”) at 1, 8, 9, 11, 14-16; Brief of

Professor Adam J. Levitin as Amicus Curiae

Supporting Petitioners at 11—13 [hereinafter Levitin

Br.]. They argue that, without this statute,

merchants, unshackled by surcharge prohibitions,

will dutifully charge credit card users no more than

the cost of processing credit card transactions. See

J.A. at 43, 47, 51, 56; Brief for Consumer Action and

National Association of Consumer Advocates as Amici

‘uriae in Support of Petitioners at 2, 5, 6 [hereinafter

Consumer Action Br.]. They claim that, with the cost

of providing credit borne by the party who chooses to

use it, patrons using cash will benefit from lower

prices, which will be particularly helpful to poorer

consumers who cannot afford the convenience of

credit.

Fortunately for the Court, the impact of

surcharges is no longer confined to theoretical

constructs. Over the last decade, Australia, the

European Union, and the United Kingdom have all

authorized credit card surcharges, only to eliminate

them or severely restrict their use in the last few

years. These experiences are instructive because they

show that statutes like New York’s reflect substantive

policy preferences. They are precisely the type of

economic regulation that has long been recognized as

being within the scope of legislative powers. Plainly,

they do not restrict speech.

A. In countries where they are authorized,

surcharges inevitably become a source of

merchant revenue instead of a mechanism to

recoup transaction costs.

In 2011, a consumer group lodged a formal “super

complaint” supported by over 40,000 petitioners, with

the U.K. Office of Fair Trading (OFT). It alleged that

merchants in general, and the travel and tourism

industries in particular, routinely imposed surcharges

“many times” the additional costs the retailer would

incur for accepting card payments. See Which? Super-

Complaint: Credit and Debit Surcharges i, vi,

submitted to Office of Fair Trading (U.K.) March 30,

2011, available at

http://www.staticwhich.co.uk/documents/pdf/paymen

t-method-surcharges-which-super-complaint-

249225.pdf.

The complaint further alleged that consumers

often have no effective payment alternatives such as

when needing to book a seat on a crowded flight or

paying for an online purchase. See id. at 58-62. For

example, surcharge fees represented up to fourteen

percent of ticket prices. /d.

In 2012, following a government investigation, the

United Kingdom enacted regulations banning

excessive surcharges. The legislation made it illegal

for merchants to charge fees that exceeded a payment

3 A “Super Complaint” is a complaint filed by designated

consumer groups to which it has to respond, See Enterprise

Act, 2002, c. 40, § 11(U.K.).

10

method’s cost of acceptance. The Consumer Rights

(Payment Surcharges) Regulations, 2012, S.lI.

2012/3110 (U.K.). The regulation was intended to

address “the dilution of price transparency” resulting

from card surcharges in excess of merchant costs,

“typically employed as a form of drip pricing.” See

Impact Assessment: Payment Surcharges at 1, [|.A.

2012/BIS0380, available at

http://www.legislation.gov.uk/ukia/2012/437/pdfs/uki

a_20120437_en.pdf. Among the stated policy

objectives and intended effects was for “[p]ayment

surcharges to become more cost reflective.” /d.

The European Union took an even more decisive

step in 2015, however, when it coupled a ban on

interchange fees for almost all credit and debit card

transactions with a corresponding ban on surcharges.

Directive 2015/2366, of the European Parliament and

of the Council of 25 November 2015 on Payment

Services in the Internal Market, art. 62, 9 4, 2015 O.J.

(L337) 35 (EU). The European Commission concluded

in its Impact Assessment that, “in those countries

where surcharging is allowed, surcharges are

sometimes exploited by retailers who applied

excessive surcharges to increase their revenues.”

Impact Assessment, Proposal for a Directive of the

European Parliament and of the Council on Payment

Services in the Internal Market and Proposal for a

Regulation of the European Parliament and of the

Council on Interchange Fees for Card-Based Payment

Transactions, at 25, SWD (2013) 0288 final (July 24,

2013).

ll

This occurred even though a prior E.U. directive

ostensibly prohibited excessive surcharging. See id.;

Directive 2011/83, of the European Parliament and of

the Council of 25 October 2011 on Consumer Rights,

art. 19, 2011 O.J. (L394) 64 (EU). Notably, prior to

the enactment of Directive 2015/2366, fourteen

member countries of the European Union had already

banned surcharging altogether. Report from the

Commission to the European Parliament and the

Council on the Application of Directive 2007/ 64/EC

on Payment Services in the Internal Market and on

Regulation (EC) No. 924/2009 on Cross-Border

Payments in the Community, at 7, COM (2013) 0549

final (July 24, 2013).

Even Australia, which was in the forefront of

eliminating credit card surcharge bans in 2003, has

moved to severely restrict them. Initially, it

authorized merchants to surcharge without

restriction, believing that this “open ended” approach

would drive down interchange fees with little if any

negative impact on consumer costs. See RESERVE

BANK OF AUSTRALIA, A VARIATION TO THE

SURCHARGING STANDARDS: A CONSULTATION

DOCUMEN" 2-3 (2011), available at

http://www.rba.gov.au/publications/consultations/201

112-variation-surcharging-standards/pdf/201112-

variation-surcharging-standards.pdf; See also

Michele Bullock, A Guide to the Card Payment System

Reforms, RBA BULLETIN, Sept. 2010, at 56-58,

available at

http://www.rba.gov.au/ publications/bulletin/2010/sep/

pdf/bu-0910-7.pdf.

12

Eventually, evidence of excessive surcharging

resulted in calls for change. As one consumer group

explained, the practice was becoming widespread and

was of particular concern in situations where

consumers have little ability to choose alternative

payment methods, such as booking flights online.

Letter from Gerard Brody, Dir., Policy and

Campaigns, and David Leermakers, Senior Policy

Officer, Consumer Action Law Ctr. to the Reserve

Bank of <Austl. (Feb. 9, 2012), available at

http://consumeraction.org.au/wp-

content/uploads/2012/04/A-Variation-to-Surcharging-

Standard.pdf. By 2015, airlines were regularly

imposing surcharges exponentially higher than

processing costs.‘

The Reserve Bank of Australia responded by

giving credit card companies the right to limit

surcharges to “the reasonable cost of acceptance,” and

providing guidance as to what costs could be included

in a surcharge. RESERVE BANK OF AUSTRALIA,

2 In March 2015, Australian airlines imposed the following

surcharges:

Qantas: $7 card payment fee on a $200 ticket =

3.5% surcharge.

Virgin: $7.70 card payment fee on a $135 ticket =

5.70% surcharge.

Jetstar: $8.50 card payment fee on a $85 ticket =

10% surcharge.

Tiger: $8.50 card payment fee on a $95 ticket =

8.95% surcharge.

See Andy Kollmorgen, Surcharging Bans Take Effect,

CHOICE.COM.AU, https://www.choice.com.au/money/credit-cards-

and-loans/credit-cards/articles/accc-to-put-a-stop-to-excessive-

credit-card-surcharging (last updated September 1, 2016).

13

GUIDANCE NOTE: INTERPRETATION OF # £THE

SURCHARGING STANDARDS (2012), available at

http://www.rba.gov.au/payments-and-

infrastructure/cards/201211-var-surcharging-stnds-

guidance/guidance-note.html. But this did not allay

the concerns of the public and policy makers.

In 2015, the Australian Legislature passed an

amendment to the Competition and Consumer Act of

2010 to ban excessive and unfair payment

surcharging by merchants. Regulations effective in

September of 2016 impose detailed restrictions on

what costs can be considered by merchants imposing

surcharges and generally limit them to the average

cost of card acceptance. See RESERVE BANK OF

AUSTRALIA, REVIEW OF CARD PAYMENTS REGULATION:

CONCLUSIONS PAPER 14-15 (2016), available at

http://www.rba.gov.au/payments-and-

infrastructure/review-of-card-payments-

regulation/pdf/review-of-card-payments-regulation-

conclusions-paper-2016-05.pdf.

. Merchants exercise monopoly control over how

large a surcharge consumers pay.

Surcharge advocates envision a world in which

consumers, deterred from using credit cards, turn to

less expensive forms of payment. See Pet. Br. at 7;

Brief for Alan S. Frankel as Amicus Curiae in Support

of Petitioners at 6; Consumer Action Br. at 11. But as

the Which? Super Complaint explains, see supra Part

1.A, even when a retailer “offers a number of

alternative payment methods, that retailer retains a

monopoly on the setting of the prices that the

14

customer will pay for different payment methods.”

Which?, supra, at iii.

Moreover, consumers are increasingly dependent

on credit cards to facilitate timely purchases. These

findings will not surprise anyone who has recently

gone online for a last-minute holiday present. See

FEDERAL RESERVE SYSTEM, THE 2013 FEDERAL

RESERVE PAYMENTS STUDY: RECENT AND LONG-TERM

TRENDS IN THE UNITED STATES: 2000-2012 13—14, 17

(2014), available at

https://www.frbservices.org/files/communications/pdf/

general/2013_fed_res_paymt_study_detailed_rpt.pdf.

In many of these circumstances, merchants have an

effective monopoly over how much the consumer pays

to complete the transaction.

As a result, instead of encouraging consumers to

use cheaper payment methods, consumers feel they

have little choice but to pay highly excessive fees. In

Australia, despite the imposition of fees clearly in

excess of processing costs, eighty-eight percent of

online survey respondents indicated that they had

paid a credit card surcharge in the previous year;

more than fifty percent paid a surcharge between one

and five times, while twenty-two percent paid

surcharges more than ten times in the previous twelve

months. See CHOICE REPORT: CREDIT CARD

SURCHARGING IN AUSTRALIA 7—10 (2010), available ai

hitp://www.fairtrading.nsw.gov.au/biz_res/ftweb/pdfs

/About_us/Credit_card_surcharges_part1.pdf.

15

C. Credit card surcharges promote misleading

pricing tactics and dubious marketing schemes

that exploit among the most powerful of

pricing biases.

If section 518 is struck down, consumers will be led

to believe that surcharges reflect the “true cost of

credit,” see, e.g., Pet. Br. at 1, 8, 11 & n.2; Levitin Br.

at 5; Brief for Ahold U.S.A., Inc. et al. as Amici Curiae

in Support of Petitioners at 7, 30; when in reality, the

amount of the surcharge is in no way tethered to the

merchant’s cost of accepting credit cards. This result

serves to distort rather than clarify the “true cost of

credit.”

For example, an analysis of the United Kingdom’s

surcharge legislation concluded that surcharging

resulted in distorted price signals by encouraging

retailers to use “drip pricing” techniques that made it

difficult for consumers to identify and respond to

transaction costs. See Impact Assessment: Payment

Surcharges, supra, at 2. Specifically, the legislation’s

Impact Assessment states that “surcharges are

typically employed as a form of drip pricing, whereby

the consumer does not see the final transaction price

until after completing several forms. This is to the

detriment of consumers as they cannot effectively

compare prices to secure the best deals.” Jd.

In restricting surcharging, the British

Government surmised that even though merchants

were likely to charge higher prices for their products,

16

consumers would, on balance, benefit by receiving

more accurate price information. See id.

In addition, merchants know that consumers

anchor their price assumptions based on the lowest .

price they see. OFFICE OF FAIR TRADING (U.K.), THE

IMPACT OF PRICE FRAMES ON CONSUMER DECISION

MAKING 21—25 (2010), available at

http://webarchive.nationalarchives.gov.uk/201404021

42426/http:/www.oft.gov.uk/shared_oft/economic_res

earch/OFT1226.pdf. A body of experimental research

offers empirical evidence regarding impact of price

framing on consumer choice. In an _ auction

experiment, participants were instructed to bid for a

jar of pennies. Jd. at 22. One group was told that they

must pay fifteen cents in addition to the bid if they

won the auction. /d. at 22-23. A second group was

told that if they won the bid, the price they would pay

would simply he the bid price. /d. at 23. The group

that was not told the full price showed a higher level

of demand for the pennies, reflected in the fact that

they were more likely to increase their bid than the

group that knew that total price. Jd.

Similarly, in another experiment, consumers were

told the prices of a telephones, with one group seeing

the total cost including shipping and handling, and

another group seeing the base price with additional

charges reported separately. Jd. Participants in the

group that was shown partitioned pricing, in which

the base price and surcharges were _ reported

separately, consistently recalled lower total prices

than the group given the total price. Id.

17

Unrestricted credit card surcharging allows

merchants to take advantage of this pricing bias

through drip pricing and other dubious pricing and

marketing strategies. These tactics are designed to

maximize profits at the expense of consumers. Ne-

surcharge laws are designed to protect consumers

from such practices and are thus legitimate economic

regulations. They have nothing to do with speech.

. Banning “excessive surcharges” will not

protect consumers from the negative

consequences of surcharging.

Petitioners argue that section 518 fails the fourth

prong of the Court’s test for commercial speech

announced in Central Hudson® because excessive

surcharging can be addressed by proper disclosures

and enforcement of existing laws banning deceptive

advertising. See Pet. Br. at 41-42. As described

above, the experience of countries that have

authorized surcharging tells a different story.

In eliminating surcharges, the European Union, in

particular, concluded that it was difficult to establish

cost categories and “that there was no practical way to

enforce this provision or to control how these costs are

calculated by merchants.” See Feedback statement on

European Commission Green Paper, Towards an

integrated European market for card, internet and

mobile payments, at 17, COM (2011) 0941 final (June

27, 2012), available al

http://ec.europa.eu/internal_market/payments/docs/ci

_

5 Central Hudson Gas & Electric Corp. v. Public Service

Commission of New York, 447 U.S. 557 (1980).

18

m/gp_feedback_statement_en.pdf. At the same time,

there was general support among market participants

for continuing to allow merchants to offer rebates. Jd.

Excessive surcharges cannot easily be defined or

identified. An effective regulation would have to

capture the costs incurred by large retailers such as

Walmart as well as smaller merchants like

Expressions Hair Design. It would involve calculating

not only direct costs such as fees paid to the

merchant’s processing bank, but also indirect costs

ranging from the costs of fraud to the costs of payment

terminal rentals. The information would then have to

be calculated by merchants and periodically updated

to reflect changed circumstances. See Reserve Bank of

Australia, Standard No. 3 of 2016, Scheme Rules

Relating to Merchant Pricing for Credit, Debit and

Prepaid Card Transactions s 4, available at

http://www.rba.gov.au/payments-and-

infrastructure/review-of-card-payments-

regulation/conclusions-paper-may2016/appendix-

a.html.

Notably, while surcharges are difficult to quantify

and require statutorily-imposed caps to protect

consumers, discounts such as those authorized by

section 518 have a built-in mechanism for ensuring

that merchants can recover their costs without

harming consumers. This is because a “merchants’

ability to discount is limited by the spread between

the credit price and the merchandise cost to the

merchant. If the merchant offers discounts by more

than that spread, the merchant will lose money on the

transaction.” Adam J. Levitin, Priceless? The

19

Economic Costs of Credit Card Merchant Restraints,

55 UCLA L. REv. 1321, 1352 (2008). In contrast,

surcharges have no such internal mechanism for

controlling the amount of the price differential; in a

landscape of unrestricted surcharging, it is open

season for merchants to impose surcharges well in

excess of their costs.

. The legislative history of section 518

demonstrates that New York anticipated the

negative consequences of surcharging

experienced in other countries.

Petitioners frame New York’s no-surcharge law as

“criminaliz[ing] truthful, non-misleading speech that

best informs consumers about the cost of credit cards.”

Pet. Br. at 26—27. To the contrary, no-surcharge laws

protect against deceptive, misleading conduct that

obfuscates the true cost of credit and creates

opportunities for windfall profits for merchants to the

detriment of consumers. The legislative history of

section 518 demonstrates that the New York State

Legislature passed this law for precisely this reason.

See NYLS’ Governor’s Bill Jacket to ch. 160, S. 8367,

Assemb. 10189, at 5 (NY 1984).

Through section 518, the New York State

Legislature intended to address “an unfair

disadvantage” faced by credit card users as a result of

the expiration of the federal surcharge ban in

February 1984. Id. The Legislature feared that “the

consumer would be subject to dubious marketing

practices and variable purchase prices.” Id.

If.

20

In other words, the unbridled ability of merchants

to impose credit card surcharges would leave

consumers vulnerable to deception at the point of sale,

and would allow for excessive surcharging beyond the

recovery of the merchant’s costs. The experiences of

Australia, the European Union, and the United

Kingdom demonstrate that these concerns were not

unfounded.

SECTION 518 DOES NOT TRIGGER FIRST

AMENDMENT PROTECTIONS.

New York General Business Law section 518

imposes a ban on credit card surcharges above

the headline price.

Since New York bans surcharges while permitting

cash discounts, it may or may not be permissible for a

merchant to charge $100 to a consumer buying a

widget in cash and $102 for purchasing the same

product with a credit card. Contrary to the position of

the petitioners, however, the legality of this conduct

does not hinge on how the merchant chooses to

characterize the price differential, but on whether the

widget’s headline price is higher than the credit card

price. If it is, then the price differential is a cash

discount, a perfectly legal price incentive.

This distinction has been understood in New York

for over three decades. In People v. Fulvio, a gas

station owner who was charged with violating section

518 did not dispute that he charged customers who

paid with credit cards more than those paying in cash.

See People v. Fulvio, 514 N.Y.S.2d 594, 596 (N.Y.

21

Crim. Ct. 1987). The legality of this conduct hinged

not on whether the defendant implemented a price

differential, but whether the price differential was the

result of a surcharge above the headline cash price.

As the court explained, the “[d]Jefendant’s contention

that the charge for gasoline in excess of the cash price

was a cash discount and not a surcharge may, if

sufficiently demonstrated by him, be a valid trial

defense to .. . General Business Law § 518.” /7d. at

596-97.

In addition, the Legislature has taken this

approach in protecting New Yorkers who are more

comfortable dealing with the postal service than

email. State law prohibits businesses from charging

consumers an additional rate, fee, or fee differential

for receiving billing statements or making payments

by mail, while permitting them to offer consumers “a

credit or other incentive to elect a specific payment or

billing option.” N.Y. GEN. Bus. LAW § 399-zzz

(McKinney 2016). The result ts that consumers

agreeing to make online payments often pay less when

paying their bills than do consumers who pay through

the mail.

The constitutionality of section 399-zzz has never

been challenged. Any such challenge would surely

fail, because it is a valid regulation of economic

conduct.

. Consumers do not construe pricing as

merchant expression.

Petitioners contend that the very act of imposing a

surcharge constitutes expressive conduct entitled to

22

First Amendment protection. This is incorrect. The

Court “has long recognized that [the First

Amendment's] protection does not end at the spoken

or written word,” Texas v. Johnson, 491 U.S. 397, 404

(1989), but the First Amendment’s protection of

speech is not boundless. The mere fact that a course

of conduct necessarily implicates the use of words or

labels does not, without more, transform that conduct

into protected speech. See City of Dallas v. Stanglin,

490 U.S. 19, 25 (1989) (“It is possible to find some

kernel of expression in almost every activity a person

undertakes .. . but such a kernel is not sufficient to

bring the activity within the protection of the First

Amendment.”); Giboney v. Empire Storage & Ice Co.,

336 U.S. 490, 502 (1949) (“[I]t has never been deemed

an abridgment of freedom of speech or press to make

a course of conduct illegal merely because the conduct

was in part initiated, evidenced, or carried out by

means of language, either spoken, written, or

printed.”).

To determine whether conduct is “sufficiently

imbued with elements of communication to fall within

the scope of the First and Fourteenth Amendments,”

Spence v. Washington, 418 U.S. 405, 409 (1974), the

Court asks whether “[a]Jn intent to convey a

particularized message was present, and |whether]

the likelihood was great that the message would be

understood by those who viewed it.” Jd. at 410-11;

Johnson, 491 U.S. at 404. The Court has held that

conduct constitutes protected symbolic speech when it.

is recognizably tied to a contemporaneous issue or

would otherwise clearly be understood as conveying a

23

message based on the context. Spence, 418 U.S. at

410-11 (affixing a peace sign to an American flag);

Tinker v. Des Moines Ind. Comm. School District, 393

U.S. 503, 514 (1969) (wearing black armbands in

school to protest Vietnam War).

The Case presently before the Court is clearly

distinguishable from cases in which the Court has

found expressive conduct to constitute protected

speech. Whereas in Spence and Tinker “it would have

been difficult for the great majority of citizens to miss

the drift of’ the expressive conduct, see Spence, 418

U.S. at 410; Tinker, 393 U.S. at 505 14, the act of

imposing a credit card surcharge has no inherently

communicative qualities, is not tied in any way to a

social issue or viewpoint, and would never be

understood as intending to express a message. It is

quite simply a pricing scheme; an economic activity

devoid of communicative intent or comprehensibility.

Petitioners also cite their beliefs regarding the

propriety, fairness and effectiveness of the no-

surcharge law, its broader impacts, or their beliefs

that they could realize significant savings if they could

impose surcharges, to support the proposition that

surcharging should enjoy First Amendment

protection. See J.A. at 20, 43, 47, 56, 57,61. However,

the act of surcharging is fundamentally nonsymbolic,

and the Court has held that nonsymbolic actions

cannot enjoy First Amendment protection, even when

the actor is motivated by a particular belief or idea.

Nev. Comm'n on Ethics v. Carrigan, 564 U.S. 117, 127

(2011) (finding that the act of voting does not

constitute protected speech).

24

The instant case invokes the Court’s holding in

Carrigan. In Carrigan, the Court observed: “the fact

that a nonsymbolic act is the product of deeply held

personal belief—even if the actor would like it to

convey his deeply held personal belief—does not

transform action into First Amendment speech. Nor

does the fact that action may have social consequences

.... Carrigan, 564 U.S. at 127. The same conclusion

is warranted in this case. Neither petitioners’ beliefs

regarding the wisdom or fairness of New York’s no-

surcharge law, nor the possibility that such laws may

have social consequences, is enough to transform the

pricing scheme of surcharging into protected speech.

CONCLUSION

For the foregoing reasons, the Court should affirm

the judgment of the court of appeals.

Dated: December 21, 2016

Respectfully submitted,

HENRY C. MEIER

Counsel of Record

MICHAEL R. LIEBERMAN

NEW YORK CREDIT UNION

ASSOCIATION

1021 Watervliet Shaker Road

Albany, NY 12205

(518) 437-8144

Henry.meier@nycua.org