Delfino Madden | credit cards

Litigation Update: Credit Card Surcharge Ban

Published January 8, 2018

California’s credit card surcharge ban (codified in Civil Code section 1748.1) was enacted in 1985 after the federal surcharge ban lapsed. The California law prohibits retailers from imposing a surcharge on customers who pay via credit card, but allows retailers to discount payments made by cash or other means.

In 2014, five business owners challenged the law’s constitutionality. In 2015, the United States District Court for the Eastern District of California found the law unconstitutional and permanently enjoined its enforcement. The State of California appealed, causing uncertainty as to whether businesses could impose credit card surcharges.

On January 3, 2018, the Ninth Circuit Court of Appeals affirmed the District Court’s judgment in favor the plaintiffs in Italian Colors Restaurant v. Becerra, No. 15-15873, 2018 WL 266332 (9th Cir. Jan. 3, 2018).  The Ninth Circuit agreed with the District Court’s holding that section 1748.1 violated the First Amendment, but narrowed the application of the District Court’s ruling to  apply only to the five plaintiffs in that case.

So what does this mean for businesses today?  While we now know the State of California is enjoined from enforcing the surcharge ban against the five plaintiffs from the Italian Colors Restaurant case, we will have to wait and see whether it will, or will not, seek to enforce the statute as to other businesses or whether it will attempt to amend the law to avoid another First Amendment challenge.

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