On February 10, 2021, legislation was introduced to repeal Kansas’s ban on surcharging. A mere two weeks later, a federal judge essentially ensured its end by declaring the statute unconstitutional.
Surcharging is a process whereby merchants impose a fee on consumers who elect to pay by credit card in order to recoup the additional processing costs associated with accepting card payments. Kansas’s anti-surcharge statute, codified at K.S.A. 16a-2-403, permitted merchants to allow discounts for customers paying by cash instead of credit card. In the fall of 2020, CardX, LLC (“CardX”) filed a lawsuit seeking to invalidate Kansas’s prohibition on surcharging, arguing that it was an unconstitutional restraint on the right of free speech. CardX is a software technology company with software that allows merchants to display prices, including cost surcharges on purchases made by credit card, and thereby allows consumers to comparison shop among payment types.
In granting CardX’s motion for summary judgment, the Court held that the free speech restrictions arising from Kansas’s surcharging ban do not advance substantial state interests “in a direct and material way and in proportion to those interests,” such that it improperly infringes on CardX’s right of free speech. “Ultimately,” the Court noted, “[The Attorney General] has the unenviable task of attempting to justify a speech restriction that rests on little more than the State’s preferred manner of describing economic transactions.” After all, it pointed out surcharges and discounts 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. Citing Judge Tjoflat’s memorable line in Dana’s RR. Supply v. Atty. Gen., Fla., 807 F.3d 1235 (11th Cir. 2015), the Court held that Kansas’s statute does not ban surcharges; it merely targets expression and could be called a “surcharges-are-fine-just-don’t-call-them-that-law.” Though the Court held that the statute was unconstitutional “as applied to CardX,” it did not elaborate on any instances where the statute could be applied in a constitutional manner.
While it remains to be seen whether Kansas’s surcharging ban will ultimately be repealed, it appears that with the Court’s ruling in the CardX case, Kansas joins the majority of states that permit surcharging by merchants.
Morgan E.M. Harrison is an associate at Arnall Golden Gregory LLP in the litigation and payments system practices. Morgan handles a variety of issues in the payments industry, including defending government lawsuits and investigations, advising on disputes governed by card brand rules, and engaging in general business and class action litigation.