WASHINGTON—CUNA has filed an amicus brief in a Florida lawsuit the trade group believes could drive credit unions right out of the credit card business.

The Florida suit—in which a group of merchants sued the state out of a belief that anti-surcharge laws violate their First Amendment rights to speak out against swipe fees and other costs associated with credit card processing—is similar to other suits in New York, Texas and California.

The merchants' "basic argument is that they're really opposed to credit card fees, and because they can't communicate in what they deem to be the most persuasive way possible what the implication of those fees actually is [by adding a surcharge to credit card transactions], this law stands in their way of their own freedom of speech," explained Robin Cook, senior director of advocacy and counsel for special projects at CUNA, and one of the brief's authors.

"It's almost laughable to me that merchants are attempting to make this a First Amendment issue," said Cook.

While surcharging is legal in some states and banned in others, a merchant offering a cash discount is legal in all 50 states. Cook said there is a key distinction between cash discounts and surcharging and used the process of comparison shopping to illustrate the point.

"If you want to spend—particularly for large purchases—you don't want to be surprised at the checkout counter with what that purchase is going to cost," said Cook. "If you're discounting, the only thing that can happen is the price goes down when you're paying for goods or services, and not the other way around. It's a policy choice on the part of the Florida legislature to say they want Florida consumers to know and be able to comparison shop in a way that they won't be surprised when they get to the checkout counter."

In Florida and Texas, the states have already won in their respective district courts, with both courts rejecting the plaintiffs' First Amendment arguments. But cross motions are still pending in California "that will ultimately tee up this issue for the 9th Circuit," said Cook, leading to the possibility that "there could be some differing law coming out of this."


In the event of split decisions by the various circuit courts, there is the possibility that these cases could wind up before the Supreme Court, but Cook reminded that "there's no guarantee that the Supreme Court would even take it with a circuit split, but it does significantly increase the likelihood" of the matter going before the highest court in the land.

What may prevent that, however, is that other circuit decisions could be informed by those that have come before on the same matter.

"As more of these cases happen, there's a body of work built up around them that informs the arguments lawyers are making to later courts and clarifies everyone's thinking about what the issues are," said Cook. While judges aren't obligated to pay attention to the decisions of other courts and wouldn't be controlled by those courts' decisions, "it's a virtual certainty" that judges from different circuits, at the very least "will be very interested in what [their colleagues] have to say," even if they aren't guided by it.

Modern Commerce

Cook explained that CUNA's involvement in the matter stems from the crucial role that credit cards play in modern commerce and how much credit unions rely on the income they provide.

"This law really has the potential to harm small financial institutions in a unique way," he said. "Larger institutions can much more quickly recoup the costs that are associated with running a card program, but smaller institutions are very reliant on the transaction volume that their members are able to generate in order to offset things like computer systems, billing equipment, underwriting—all the things that go into running a card program. The plaintiffs in this case have predicted that if surcharging were to be allowed, it would cause consumers to stop using their credit cards in the volume with which they use them today, and that has a real potential to cause credit unions to need to rethink whether they need to play in this market at all. If there's not an economically viable way for them to recoup the substantial costs associated with running a card program, very likely they might exit the market."

While CUNA is the sole signatory on the amicus brief, it has also worked with the League of Southeastern CUs (which serves Florida and Alabama), on the mater, as well as working with the New York league in that suit.

Cook added that FIs aren't the only ones to benefit from credit card fees—merchants see a benefit, too.

"Credit cards make modern commerce possible in ways you could've never imagined even ten years ago," he said. "Buying things online, gas pumps in the middle of the night, unattended kiosks at the store that allow personnel to have their attention focused elsewhere except up front—these things lower the cost for merchants and raise the efficiencies for merchants. It is in their interest to accept credit cards for reasons that have a whole lot to do with the nature of their business and don't necessarily have anything to do with the demand on the part of consumers to pay with them."

After all, he added, merchants aren't obligated to accept plastic, but by accepting them they're signaling that the benefits outweigh the costs.

"The theory of this case at its core is essentially that swipe fees are inherently evil, but that's just not true," said Cook. "Swipe fees are what makes the system work so merchants can receive the extraordinary benefits available to them through credit cards. That's the thing that I think at the end of the day credit unions care about most—they're providing a service to merchants and really believe they ought to get paid for it."

Oral arguments in the case are not expected to be heard until late summer or early fall. Until then, CUNA's brief is available online at www.cuna.org.

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