The John Locke Foundation, and 10 other amici curiae (“friends of the court”), have filed a brief asking the U.S. Supreme Court to consider that question.

The case is Expressions Hair Design v. Schneiderman. The plaintiffs are a group of New York merchants who are challenging a state law that makes it a crime for them to add surcharges for credit card purchases but nevertheless allows them to offer discounts for purchases made with cash. They argue that there’s no substantive difference between “adding a surcharge” and “deducting a discount”—it’s merely a matter of the language used to describe what is happening—and, therefore, that forcing them to describe what they are doing as “deducting a discount” rather than “adding a surcharge” violates their right to free speech under the First Amendment.

When their complaint was heard in federal district court, the court agreed:

Alice in Wonderland has nothing on section 518 of the New York General Business Law. Under the most plausible interpretation of that section, if a vendor is willing to sell a product for $100 cash but charges $102 when the purchaser pays with a credit card, the vendor risks prosecution if it tells the purchaser that the vendor is adding a 2% surcharge because the credit card companies charge the vendor a 2% “swipe fee.” But if, instead, the vendor tells the purchaser that its regular price for the product is $102, but that it is willing to give the purchaser a $2 discount if the purchaser pays cash, compliance with section 518 is achieved. … [T]his virtually incomprehensible distinction between what a vendor can and cannot tell its customers offends the First Amendment and renders section 518 unconstitutional.

The U.S. Court of Appeals for the 2nd Circuit, reversed,

Consumers react negatively to credit-card surcharges not because surcharges “communicate” any particular “message,” but because consumers dislike being charged extra. … If a consumer thinks, based on a seller’s sticker price, that she will be paying $100 for the seller’s goods or services, then she will be annoyed if it turns out that she actually has to pay $103 simply because she has chosen to use a credit card; by contrast, if the sticker price is $103, she will be less annoyed by having to pay $103, even if cash customers only have to pay $100. Nothing about the consumer’s reaction in either situation turns on any words uttered by the seller. And although the difference in the consumer’s reaction to the two pricing schemes may be puzzling purely as an economic matter, we are aware of no authority suggesting that the First Amendment prevents states from protecting consumers against irrational psychological annoyances.

It should be noted that the New York State legislature did not, in fact, enact the credit surcharge ban to protect consumers against “irrational psychological annoyances.” It did so to help the credit card industry maintain its profit margins. Credit card companies charge a “swipe fee” every time a consumer uses a card, but they don’t want consumers to know about that, and they certainly don’t want the swipe fee to be passed on to consumers in the form of a surcharge, because that would make consumers less likely to use their cards. To keep that from happening, they’ve lobbied hard for laws banning credit surcharges at the state and at the federal level.

In a separate amicus brief filed by the Cato Institute, Ilya Shapiro summarizes the “long history of this industry’s attempts to insulate ‘swipe fees’ from market accountability.”:

Before any such laws were passed, these companies included contractual clauses forbidding merchants from charging different prices when a consumer used a credit card as opposed to cash. This practice, however, was addressed by Congress in a 1974 amendment to the Truth in Lending Act (TILA). (“[A] card issuer may not, by contract or otherwise, prohibit any . . . seller from offering a discount to a card- holder to induce the cardholder to pay by cash, check, or similar means rather than use a credit card.”).

With the foreclosure of the credit card companies’ ability to insulate their profits through private contract, they diverted their efforts to masking their presence in the cost of products by regulating how businesses could communicate their pricing. Congress was happy to oblige. In legislation that mirrors New York’s Section 518, Congress passed another amendment to the TILA in 1976. This amendment temporarily banned “surcharges,” on the use of credit cards, despite the authorization for “discounts.” From the outset, however, many—including government officials and consumer-advocacy groups—saw the legislation as a semantic distinction without a difference. By 1984, lobbying efforts to hide swipe fees wore thin, and Congress let the 1976 amendment lapse.

Not to be deterred, the credit-card industry turned to the states, which promised new majorities to capture—and were successful in doing so in 10 states, including New York. Indeed, N.Y. Gen. Bus. Law § 518 was modeled after the 1976 amendment to the TLA.

In short, the New York ban on credit surcharges is a typical exercise of the kind of cronyism that disfigures too much of America’s economic life.

Be that as it may, this case doesn’t turn on whether such cronyism is constitutional as a general matter; it turns on whether this particular instance of cronyism violates the First Amendment. Our amicus brief, which was prepared and filed by Foley & Lardner, argues that it does violate the First Amendment. It makes it point, in part, by asking a question about the example employed by Second Circuit in the passage quoted above:

Suppose two customers are in the store, one with a credit card and one with cash, and they ring up the same good at two adjacent registers and see the price difference. Would portions of the following conversation be illegal?

Credit customer: “Hey, how come he’s paying three dollars less for the same thing?”

Cashier 1: “He’s getting the cash discount.”

Credit customer: “So it’s cheaper to pay with cash than with credit?”

Cashier 1: “Yes.”

Cash customer: “So how much more does it cost if I switch to credit?”

Cashier 2: “Paying with credit costs $3.00 more.”

Cash customer: “Credit costs that much?”

Third customer (waiting in line): “Oh, yes, every time you pay with credit anywhere in the country, there is a surcharge. This store bakes the surcharge into its sticker price.”

Cash customer (turning to Cashier 1): “Is that right? There’s a credit surcharge?”

Manager (rushing from the backroom): “We are not at liberty to discuss that!”

Cashier 1: (nodding) “Right. You didn’t hear that from me. I’m not supposed to say that.” (winking)

Cashier 2: “Oh come on! We just told you that cash is cheaper every time. So yes, there’s a fee every time you swipe the credit card.”

It will be interesting to see what the Supreme Court makes of these arguments.