September 29, 2016 / 1:51 PM / a year ago

UPDATE 3-U.S. top court to resolve dispute over credit card surcharges

(Adds comments from challengers’ lawyer)

By Lawrence Hurley

WASHINGTON, Sept 29 (Reuters) - The U.S. Supreme Court on Thursday agreed to hear a challenge to a New York state law barring retailers from imposing surcharges on customers who buy with a credit card rather than cash, a measure merchants contend violates their right to free speech.

The court will hear an appeal by a group of merchants to a September 2015 ruling by the New York-based 2nd U.S. Circuit Court of Appeals upholding the law. Nine other states have similar laws. The justices took no action on two cases involving similar challenges to Florida and Texas laws.

Merchants contend the laws violate retailers’ rights to free speech and due process under the U.S. Constitution’s First Amendment.

“These state laws attempt to keep consumers in the dark about the high cost of credit cards. But the First Amendment guarantees the right of merchants to keep consumers informed and, just as importantly, the reciprocal right of consumers to receive information. There’s no good justification for these laws,” said Deepak Gupta, the merchants’ lawyer.

The states have said their laws protect consumers, letting customers rely on a retailer’s posted prices rather than be surprised at checkout, when they may resist changing their minds about purchases.

New York Attorney General Eric Schneiderman, who is defending the law, declined to comment.

Retailers have long complained about the cost of accepting credit cards including “swipe fees,” a percentage of a credit card transaction the merchants pay to networks such as MasterCard Inc and Visa Inc every time a credit card is swiped to pay for a purchase. “Swipe fees” average about 2 percent of a purchase, according to the National Retail Federation, which favors lowering these fees.

New York’s law subjects merchants to a potential one-year prison sentence and $500 fine for imposing credit card surcharges.

Five merchants, including a Brooklyn ice cream parlor and a hair salon near Binghamton, challenged it. In 2013, U.S. District Judge Jed Rakoff sided with the merchants and blocked enforcement of the law, saying it “perpetuates consumer confusion.”

The New York-based 2nd U.S. Circuit Court of Appeals then upheld the law in September 2015.

Several merchants, including CVS Health Corp and Safeway Inc, filed a brief urging the high court to take up the issue. Lawyers for the companies called New York’s law a free speech violation that “suppresses business, harms the economy and disproportionately burdens low-income consumers.”

The court will hear arguments and issue a ruling in its coming term, which begins on Monday and ends next June.

Reporting by Lawrence Hurley; Editing by Will Dunham

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