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Friday, March 29, 2024

Tech company prevails in challenge of Kansas' no-surcharge law

Federal Court
Derekschmidt

Schmidt

TOPEKA, Kan. (Legal Newsline) – A tech company challenging how Kansas credit card transactions are handled has one its argument that the state’s no-surcharge statute violates the First Amendment.

Federal judge John Broomes ruled for Feb. 25 for CardX, a company whose software allows merchants to display the variety of prices in order to pick the payment type they prefer.  The challenged Kansas law allows merchants to offer discounts to customers who pay by cash rather than credit card.

“In Kansas, merchants remain obligated to absorb the costs of a consumer’s choice to use a credit card because the no-surcharge statute makes it illegal to communicate differential pricing as a surcharge,” Broomes wrote.

“When businesses are unable to pass on the cost of a credit card acceptance as a surcharge, that cost is often built into the costs of all goods and services sold by that business, which in turn raises prices for all customers regardless of whether they use credit or non-credit payment options.

“This results in a ‘cross-subsidy’ from non-credit payers to the customers who pay by credit card. For the average credit card user, this amounts to over $1,100 per year.”

Allowing credit card surcharges would benefit businesses and consumers, Broomes wrote. Kansas’ no-surcharge law results in merchants spread the cost of using credit cards around to all purchasers, he said.

“Kansas prefers to label the lower price attendant to cash purchases a ‘discount’ and so prohibits Plaintiff from labeling the higher price of credit purchases as a surcharge, even though both describe the same state of affairs: cash purchasers pay less and credit card purchasers pay more because of the cost associated with using credit cards,” Broomes wrote.

“(S)uch a law does not ban surcharges; it merely targets expression and could be called a ‘surcharges-are-fine-just-don’t-call-them-that-law.’ This elevation of form over substance, which fails to directly and materially advance any substantial state interest, unjustifiably infringes on Plaintiff’s right to convey information to consumers in a way that truthfully and accurately describes the transaction and allows consumers to make an informed choice.”

The no-surcharge law is 35 years old. CardX does business with merchants in 46 states without such a law.

The company filed its challenge last year against Attorney General Derek Schmidt, noting courts struck down similar laws in California, Florida, New York and Texas, while Oklahoma Attorney General Mike Hunter concluded that his state’s law violated the First Amendment because it restricted commercial speech.

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