A federal judge in New York has ruled that state's ban on retailers surcharging credit card purchases is unconstitutional.

U.S. District Court Judge Jed Rakoff, serving in the Southern District of New York, ruled Thursday in favor of five retail firms which had challenged New York's ban in Section 518 of the New York General Business Law.

The retailers had claimed that not being able to tell consumers that they were surcharging transactions conducted with a credit card, in order to recoup card interchange fees, effectively violated their First Amendment rights.

The law “perpetuates consumer confusion by preventing sellers from using the most effective means at their disposal to educate consumers about the true costs of credit card usage,” Rakoff wrote in a 35-page decision.

“Even beyond the informational content of surcharges, sellers' inability to effectively inform consumers of the true costs of credit has the effect of artificially subsidizing credit at the expense of cash, increasing overall credit card usage and consumer debt,” he added.

The decision has potentially far-reaching implications since the settlement of the last major anti-trust case between retailers and merchants allows merchants to surcharge card transactions, provided they duly inform consumers that they are doing so.

Market experts have thought it unlikely many retailers would surcharge on account of competition with other retailers who might not surcharge and because 11 states, including New York, ban the surcharging. 

Although Rakoff's opinion only addresses New York's law directly, media reports quote retailer lawyers as expressing interest in challenging similar bans in other states.