Ninth Circuit Court of Appeals Finally Hears the Credit Card Surcharging Argument, by Wanda Borges, esq.

By: Wanda Borges, Esq.
Borges & Associates, LLC

Those companies which are still following credit card anti-surcharging litigation know that the case of Italian Colors Restaurant v. Harris (as Attorney General of the State of California) has been sitting still before the 9th Circuit Court of Appeals for more than two years. The United States District Court for the Eastern District of California, on March 23, 2015 ruled against the California statute which prohibits the pass-through of credit card surcharging. The pertinent statute (California Civil Code section 1748.1) says: No retailer in any sales, service, or lease transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means. A retailer may, however, offer discounts for the purpose of inducing payment by cash, check, or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers.

The U.S. District Court found the statute to be unconstitutional and permanently enjoined its enforcement. The California Attorney General filed an appeal to the 9th Circuit Court of Appeals and there the case has sat. It is this writer’s impression that the 9th Circuit was waiting to see what would happen with the New York case of Expressions Hair Design which was to be heard by the United States Supreme Court.

On March 29, 2017, the U.S. Supreme Court vacated the decision of the 2nd Circuit Court of Appeals which left the New York statute to be deemed unconstitutional as District Court Judge Rakoff had determined. On August 17, 2017, the 9th Circuit Court of Appeals finally heard oral argument on the Italian Colors v. Becerra (the current Attorney General of California substituted for Harris). What was most interesting was the Attorney General’s statement that California permits dual pricing as long as it is clear and conspicuous. He said that the statute means a merchant cannot post a single price and then add on a surcharge.

A strict reading of the statute would not agree with that statement. The 9th Circuit panel often referred to the Supreme Court decision in the Expressions Hair Design case and seemed to be leaning towards mimicking the Supreme Court in declaring the California statute to be unconstitutional and allowing a surcharge to be added provided it is clearly and conspicuously noticed. It was also interesting to note that both sides consistently argued that the surcharge prohibitions exist to protect consumers. This supports the opinion that the passing through of credit card surcharges is perfectly permissible for business-to-business transactions. It may take several months for a decision to be handed down but at least the 9th Circuit has moved forward on this matter.

WANDA BORGES, ESQ. is the principal member of Borges & Associates, LLC, a law firm based in Syosset,
New York. For more than thirty years, Ms. Borges has concentrated her practice on commercial
litigation and creditors’ rights in bankruptcy matters, representing corporate clients and creditors’
committees throughout the United States in Chapter 11 proceedings, out of court settlements,
commercial transactions and preference litigation. She can be reached at 516-677-8200.

3 Replies to “Ninth Circuit Court of Appeals Finally Hears the Credit Card Surcharging Argument, by Wanda Borges, esq.”

  1. Wanda: What is the bottom line law as of today September 2017? As a wholesale distribution company, can we pass on a credit card surcharge to credit card customers or not? Or, is it still be litigated in the courts? If we categorize the credit card surcharge as a miscellaneous charge or handling charge on the invoice, is that sufficient and allowed under the law?

  2. Once the Antitrust litigation involving Master Card, Visa, Discover, American Express, etal was resolved for the most part, the credit card companies decided to allow merchants to pass-through the credit card surcharges to their customers. However, at that time 10 states plus Puerto Rico had state laws which prohibited such pass-through, which we refer to as the “anti-surcharging statutes”. They were California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and, Texas plus Puerto Rico. Based on rulings by the United States Supreme Court, the statutes in Florida and New York have been found to be unconstitutional. As stated in the original blog, California is still litigating this issue but currently surcharging is permissible in California.

    For the remaining states and Puerto Rico:
    Three (3) of the states with surcharge prohibition laws have adopted the Uniform Consumer Credit Code: Colorado, Kansas, Maine
    California’s statute specifically uses the word “consumer”
    Massachusetts’ statute is included under “Consumer Credit Cost Disclosure”
    Oklahoma’s statute is under the title “Consumer Credit Code”
    Texas’ prohibitions regarding surcharge is specifically enforced only by the Consumer Credit Commissioner
    Puerto Rico’s statute specifically uses the word “consumer”

    Therefore, it is my opinion and that of other creditors’ rights attorneys that the laws in these states apply only to consumer transactions and do not apply to commercial business to business transactions. Only Connecticut remains where it is unclear whether or not the law is meant to apply to consumer or business transactions.

    This may seem like a long-winded answer. Succinctly stated, yes, except for CT (which is unclear), you may pass on the credit card surcharge on BUSINESS to BUSINESS transactions.

    You don’t need to categorize it as anything other than a credit card surcharge and I don’t recommend disguising it, simply call it what it is.

    Be mindful, however, that you must comply with the credit card rules of your provider which include giving the credit card companies 30 days notice of your intention to pass through the surcharges AND include a requirement that you notify your customers of your intention to do this.

  3. Thanks for your update on the Italian Colors case. I think some of the concern remains in California because sole proprietors frequently use consumer credit cards and there’s a CA State definition or statute elsewhere that blurs that business vs consumer line. It’s typical our CA Attorney Generals have differing viewpoints. I agree with your overall opinion, however until the 9th Circuit Court finally rules on this issue it remains a little fuzzy and many of us under this jurisdiction await their final decision before considering adding surcharges.

    We’re a wholesale distributor selling business to business, however we do have a small portion of our sales which are done to accommodate our dealers employees or friends (1x taxable end users) and they use consumer credit cards.

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