U.S. top court throws out ruling that upheld N.Y. credit card law

The U.S. Supreme Court building is seen in Washington, DC, U.S. on March 16, 2016. REUTERS/Jim Bourg/File Photo

By Lawrence Hurley

WASHINGTON (Reuters) - The U.S. Supreme Court on Wednesday threw out a ruling that upheld a New York law barring retailers from charging more to customers buying with credit cards, sending the case back to a lower court to decide on free speech grounds, not as price regulation.

The merchants that challenged the law argued it violated their free speech rights under the U.S. Constitution's First Amendment, and the 8-0 ruling by the justices handed them at least a temporary victory. The justices returned the matter to the New York-based 2nd U.S. Circuit Court of Appeals, which upheld the law in 2015 as legitimate price regulation.

The merchants' attorney, Deepak Gupta, expressed confidence the law would eventually be struck down following the Supreme Court action. Nine other states have similar laws.

Retailers are forced to pay fees to credit card companies every time a customer buys with a card. The New York law barred retailers from imposing a surcharge on customers who made purchases with a credit card. It also made it impossible for merchants to call fees paid to credit card companies a surcharge that is added to the price of a product. The law did not stop retailers from offering a discount for cash purchases.

The case hinged on whether the justices saw the law as a speech restriction or a traditional form of price regulation not subject to a free speech challenge.

In a ruling authored by Chief Justice John Roberts, the court decided it is speech regulation. The businesses, Roberts said, "want to make clear that they are not the bad guys" responsible for the higher prices, but the law precludes them from doing so. The court did not decide whether or not the measure is lawful.

A spokeswoman for New York Attorney General Eric Schneiderman said, "We respect the court's decision and will continue to defend the statute on remand" to the lower court.

Merchants contend laws like the one in New York infringe on their free speech rights by dictating how they describe their pricing to customers.

Retailers have long complained about the cost of accepting credit cards including "swipe fees," a percentage of the purchase price the merchants pay to networks such as MasterCard Inc and Visa Inc every time a credit card is used.

Five New York state merchants, including a Brooklyn ice cream parlor and a Manhattan martial arts studio, challenged the law, saying it "keeps consumers in the dark by criminalizing truthful speech."

The lead plaintiff, Expressions Hair Design unisex salon in Vestal, New York, said in court papers after it learned of the law it removed signage notifying customers of a card surcharge, but would like to put it back up.

The New York law subjected merchants to a potential one-year prison sentence and $500 fine for imposing credit card surcharges.

In 2013, U.S. District Judge Jed Rakoff sided with the merchants and blocked enforcement of the law. The appeals court then upheld the law in 2015.

(Reporting by Lawrence Hurley; Additional reporting by Andrew Chung in New York; Editing by Will Dunham)

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