A federal judge has upheld a Texas law that bars the state's retailers from charging an additional fee to customers who pay with a credit card.
Texas is one of about 10 states that bar the use of surcharges at the cash register. For decades, those laws were largely irrelevant, because Visa and MasterCard imposed similar prohibitions in their contracts with merchants. But in a legal settlement approved in 2013, the two card networks agreed to cease the bans nationwide.
That brought attention to the state bans, which retailers dislike because they make it difficult for merchants to communicate to their customers the fact that credit card payments are more costly to the retailer.
The court challenge came from a group of Texas merchants that noted the fact that the statute allows them to offer a discount to customers who choose other payment methods, including cash, and said that the discount is functionally equivalent to a surcharge on credit card purchases.
Allowing discounts but barring the use of a different label for them amounts to a violation of the merchants' First Amendment rights, the complaint argued, since it prevents retailers from choosing the language they want to use.
But in a terse two-page judgment Feb. 4, U.S. District Judge Lee Yeakel dismissed the lawsuit.
"We believe the court made the right decision," said Matt Nance, assistant general counsel in the Texas Office of Consumer Credit Commissioner. His office argued that the Texas law is an economic regulation, and not a matter of free speech, as the plaintiffs argued.
Deepak Gupta, a lawyer for the plaintiffs, said that he was disappointed by the decision, but vowed to appeal it to the 5th U.S. Circuit Court of Appeals. Gupta has filed similar lawsuits on behalf of retailers in New York, California and Texas, all of which have laws similar to the Texas statute.
In New York, the merchants prevailed in U.S. District Court in 2013. An appeals court hearing in that case is scheduled for March 5.
District court judges have yet to rule on the constitutionality of the California and Florida laws.