A group of small businesses filed a lawsuit challenging New York's law prohibiting merchants from imposing surcharges to make up for the fees they must remit when customers pay with a credit card.

Five merchants including a hair salon, ice-cream parlor and liquor store filed a complaint June 4 in federal court in Manhattan demanding that the law be declared unconstitutional. While prohibiting extra charges, the state allows merchants to offer customers discounts for paying with cash, infringing on freedom of speech and preventing consumers from understanding the costs of swipe fees, according to the complaint.

"New York's no-surcharge law allows credit card companies to keep the costs of credit hidden from consumers by preventing merchants from communicating these costs in an effective manner," the businesses said in the complaint. "The prohibition on communication insulates credit card companies from competition, causes the costs of credit to skyrocket, and frustrates the purposes of federal antitrust law."

Ten states have laws prohibiting credit card surcharges and more lawsuits are expected to be filed in those jurisdictions, lawyers for the plaintiffs said in a statement.

The action follows Visa Inc.'s and MasterCard Inc.'s $7.25 billion settlement of an antitrust suit over merchant credit card fees under which the companies agreed to lift their own restrictions against surcharges.

The settlement, said to be the largest-ever in a U.S. antitrust case, is opposed by dozens of large retailers, which contend it isn't big enough and allows the card companies to continue to fix fees.

The case is Expressions Hair Design v. Schneiderman, 13- cv-3775, U.S. District Court, Southern District of New York (Manhattan). The settlement case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05- md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

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