Oklahoma overturns surcharge ban

Oklahoma Attorney General Mike Hunter reversed the state’s ban on credit card surcharging, overturning HB 1425, which was signed into law April 30, 2019, by Governor John Kevin Stitt. The legislation prohibited merchants from increasing transaction prices for buyers who pay with credit cards instead of cash. Sen. Michael Brooks, D-Oklahoma City, had appealed the decision in a letter to the state attorney general.

Brooks, who serves in the state senate’s Business, Commerce and Tourism Board, challenged the constitutionality of the surcharge ban, claiming it violates a merchant’s right to free speech guaranteed under the First Amendment of the U.S. Constitution. Citing similar claims made in Florida, California and Texas that resulted in surcharge repeal, Brooks wrote, “[I]n light of those cases, does 14A O.S.Supp.2019, § 2-211, which allows discounts on purchases made with cash or checks but bans surcharges on purchases made with credit cards or debit cards, also violate the First Amendment?”

Brooks had consulted with Jonathan Razi, CEO of CardX and a Harvard Law School graduate. Both were gratified by the positive response from Oklahoma’s Department of Justice. A Dec. 17, 2019, letter to Sen. Brooks, signed by Attorney General Mike Hunter and Assistant Solicitor General Bryan Cleveland, affirmed the state surcharge ban restricted commercial free speech.

“This opinion today gives consumers more choices on how to pay and will also give merchants more flexibility on how they manage their costs,” Brooks said.

“This result in Oklahoma solidifies an inevitable payments industry makeover,” Razi added. “Until today, Oklahoma was one of five states where we couldn’t serve businesses, and this decision means that 94 percent of the United States by population is now open to credit card surcharging.”

Defining moment

Hunter and Cleveland’s analysis was based on legal precedent and definitions of discounting and surcharge in the Truth in Lending Amendment (TILA) and in the Merriam-Webster dictionary, which is also referred to as the “plain meaning approach.”

The Ninth Circuit Court ruled in favor of the plain meaning approach, finding the difference between a surcharge and a discount is “in name only,” because the cash price is the price that the merchant “would otherwise charge.” This differs from the TILA definition, which states that a surcharge is “any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means,” and a discount is “a reduction made from the regular price.”

“In light of the above analysis, we conclude that Oklahoma’s ban on surcharges for purchases using credit cards or debit cards would not [survive] scrutiny,” the court wrote. “The plain meaning of a [surcharge] would render the statute an impermissible commercial speech regulation, and the TILA definitions would not save the statute because of the exceptions to compliance in Oklahoma law.”

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