Question Submitted By Brooks, 121719 OKAG, 2019 OK AG 12

Docket Nº:2019 OK AG 12
Party Name:Question Submitted by: The Honorable Michael Brooks, Oklahoma Senator, District 44
Case Date:December 17, 2019
Court:Oklahoma Attorney General Opinions

2019 OK AG 12

Question Submitted by: The Honorable Michael Brooks, Oklahoma Senator, District 44

No. 2019 OK AG 12

Oklahoma Attorney General Opinions

December 17, 2019



¶0 This office has received your request for an official Attorney General Opinion in which you ask, in effect, the following question:

Federal courts have invalidated several state statutes that prohibit merchants from imposing surcharges on purchases made with credit cards but allow merchants to offer discounts for making the same purchase with cash or check, finding that the statutes regulate what label merchants can use for differentiated pricing and are impermissible commercial speech regulations that violate the First Amendment to the U.S. Constitution. In 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?



A. The history of Oklahoma's prohibition on sellers imposing surcharges on credit card transactions.

¶1 In Title 14A of the Oklahoma Statutes, the State adopted its version of the Uniform Consumer Credit Code ("UCCC"). 14A O.S.Supp.2019, § 1-101. Two provisions of Title 14A are relevant to your request, and they are nearly identical. First, Section 2-211 provides, in relevant part, as follows: With respect to all sales transactions, a discount which a seller offers, allows or otherwise makes available for the purpose of inducing payment by cash, check or similar means rather than by use of an open-end credit card account shall not constitute a credit service charge as determined under Section 2-109 of this title if the discount is offered to all prospective buyers clearly and conspicuously in accordance with regulations of the Administrator of Consumer Affairs. No seller in any sales transaction may impose a surcharge on a cardholder who elects an open-end credit card or debit card account instead of paying by cash, check or similar means. There is no limit on the discount which may be offered by the seller.

Id. § 2-211(A). Second, Section 2-417 uses almost identical language: "No seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card or debit card in lieu of payment by cash, check or similar means." Id. § 2-417(A).

¶2 Oklahoma adopted these statutes to maintain an exemption from the federal Consumer Credit Protection Act, commonly known as the Truth in Lending Act ("TILA"). See 14A O.S.2011 Ann. § 2-211, Okla. cmt. 1 Congress enacted TILA "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601. One major requirement of TILA is the disclosure of any charge imposed on a person in a consumer credit transaction incident to the extension of credit, referred to in TILA as a "finance charge." See id. § 1605(a).

¶3 TILA directs the relevant federal agency 2 to exempt certain transactions from TILA at a state's request if the applicable state law is substantially similar and the state has adequate provision for enforcement. 15 U.S.C. § 1633. In 1970, Oklahoma was granted an exemption from many TILA provisions. See Dalton v. City of Tulsa, 1977 OK 25, ¶¶ 7 n.2, 14, 560 P.2d 955, 956-57. In 1982, the federal government renewed the exemption under the revised TILA. See Consumer Leasing, Truth in Lending; Order Granting Exemptions to the States of Massachusetts, Oklahoma, and Wyoming, 47 Fed. Reg. 42171 (1982). It reserved the right to revoke the exemption if Oklahoma failed to maintain the requirements for an exemption. Id. at 42172.

¶4 In 1976, Congress amended TILA to address fees imposed on merchants in sales by credit card. See Pub. L. 94-222, § 3(c)(1), 90 Stat. 19 (1976). Similar to the UCCC provisions described above, TILA provided that a discount of 5% or less for purchases by cash, check, or similar means that satisfied certain notice requirements did not constitute a "finance charge" that had to be disclosed under TILA. Id. It also provided that "[n]o seller in any sales transaction may impose a surcharge on a card holder who elects to use a credit card in lieu of payment by cash, check or similar means." Id. 3 Congress eliminated the 5% cap on discounts in federal law in 1981. Pub. L. 97-25, 95 Stat. 144 (1981). TILA's ban on surcharges expired in 1984. Id.

¶5 In 1977, Oklahoma passed Sections 2-211 and 2-417 of Title 14A, which essentially copied the TILA provisions regarding discounts and surcharges. See 14A O.S.Supp.1977, §§ 2-211, 2-417. After TILA was amended in 1981, Oklahoma similarly amended Section 2-211, eliminating the 5% cap on discounts and incorporating the prohibition on surcharges from Section 2-417 into Section 2-211. 14A O.S.Supp.1982, § 2-211. Oklahoma later amended its statutes to also ban surcharges on debit cards. 2010 Okla. Sess. Laws ch. 69, §§ 1, 2.

B. Constitutional challenges to similar laws enacted in other states.

¶6 After the federal surcharge ban expired in 1984, several states enacted laws banning surcharges on credit card purchases. See Cal. Civ. Code § 1748.1; Colo. Rev. Stat. § 5-2-212; Conn. Gen. Stat. § 42-133ff; Fla. Stat. § 501.0117; Kan. Stat. § 16a-2-403; Me. Rev. Stat. tit. 9-A, § 8-303(2) (replaced by Me. Rev. Stat. tit. 9-A, § 8-509 in 2011); N.Y. Gen. Bus. Law § 518; Tex. Bus. & Com. Code § 604A.0021; see also Mass. Gen. Laws ch. 140D, § 28A (adopted 1981). Some of these state laws only discuss surcharges rather than discussing both surcharges and discounts. See, e.g., N.Y. Gen. Bus. Law § 518. TILA alters these laws because it still contains both a provision stating that a discount is not a finance charge and a provision preempting any contrary state laws. See 15 U.S.C. §§?1666f(b), 1666j(c). Thus, between the text of the state laws and the continuing TILA provisions on discounts, these state laws are substantively similar to each other.

¶7 Recently, several of these laws have been challenged as unconstitutional limitations on commercial speech. Before turning to the cases themselves, we briefly outline what "commercial speech" is in constitutional terms, and what limitations are permissible on this type of speech.

1. Legal standards for determining whether a statute is an unconstitutional commercial speech regulation.

¶8 The First Amendment to the U.S. Constitution states that "Congress shall make no law... abridging the freedom of speech." U.S. CONST. amend. I. The First Amendment applies to the states through the due process clause of the Fourteenth Amendment. Stromberg v. People of State of Cal., 283 U.S. 359, 368 (1931). By its plain text, the First Amendment only applies to laws that regulate speech, not laws that regulate conduct. See Expressions Hair Design v. Schneiderman, 137 S.Ct. 1144, 1150 (2017).

¶9 The First Amendment accords lesser protection to commercial speech than it does to other speech. Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of New York, 447 U.S. 557, 562 (1980). Commercial speech is speech that proposes a commercial transaction, such as a sale. See id. Because such transactions are traditionally subject to government regulations, the protection available for commercial speech depends on the nature of the expression and on the nature of the governmental interests served by regulating that expression. See id. at 562-63.

¶10 In addition, speech regulations face different levels of scrutiny based on whether they restrict speech or compel disclosures. See Expressions Hair Design, 137 S.Ct. at 1151. Under Central Hudson, restrictions on commercial speech must survive a four-part test that imposes a type of intermediate scrutiny. See Cent. Hudson, 447 U.S. at 566; id. at 574 (Blackmun, J., concurring) (describing the test as intermediate scrutiny). First, a court assesses whether the commercial speech is not misleading and not related to unlawful activity. See id. at 566. If the speech passes that test, then it receives some First Amendment protection. See id. The next three parts of the test determine whether the governmental interests are sufficient to justify regulation notwithstanding the First Amendment. See id. Second, a...

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