Calif. district court overturns anti-surcharging law

March 26, 2015

SACRAMENTO, Calif. (3/27/15)--The U.S. District Court for the Eastern District of California ruled Thursday that the state's anti-surcharging law is unconstitutional.

CUNA filed an amicus brief in a similar case in Florida earlier this month, arguing that allowing merchants to add additional surcharge fees to card transactions will give merchants full value of participation in the credit card system while passing costs to consumers.

"Credit cards provide the consumer a safe, efficient, convenient, seamless transaction that redounds to the benefit of merchants," CUNA Senior Director of Advocacy and Counsel for Special Projects Robin Cook argued in the brief. "Meanwhile, card issuers like credit unions assume all of the risk and guarantee the merchant will receive payment immediately. The interchange component of the merchant discount fee is how issuers are appropriately compensated for providing this service."

CUNA anticipates filing an amicus brief in the California case, arguing that a surcharge on credit card transactions could lead to consumers using credit cards less frequently.

From a credit union perspective, lower usage could cause credit unions to exit the credit card market, and be unable to provide access to consumer-friendly products such as free checking, which the interchange fees help subsidize.

Retailers have brought lawsuits in three other states arguing that price determination is a form of free speech, and by banning surcharges, merchants cannot protest the interchange fees which they believe are too high.

A similar decision was reached in New York on a similar case, and that decision is now on appeal. Anti-surcharging laws have been upheld in Texas.

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