Preemption
Asociación de Detallistas de Gasolina de Puerto Rico Inc. v. Commonwealth of Puerto Rico
Date: May 29, 2025
Issue: Whether the Cash Disclosure Act (CDA) and Durbin Amendment preempt Puerto Rico’s credit card surcharge law (Law 150).
Case Summary: In a unanimous decision, a First Circuit panel ruled that Puerto Rico’s Law 150 is not preempted by the Cash Discount Act or the Durbin Amendment.
The Puerto Rico legislature enacted Law 150 in 2008. Merchants typically pay a 2-3% “swipe fee” to card issuers for credit or debit card transactions. Merchants often attempt to offset this cost by adding surcharges for card use or offering cash discounts. Law 150 forbids merchants from imposing surcharges on credit or debit card transactions while expressly allowing discounts to promote cash payments. In 2013, Puerto Rico amended Law 150 through Law 152, repealing the cash discount provision to eliminate market confusion.
In 2014, Asociación de Detallistas de Gasolina de Puerto Rico Inc., and its co-plaintiffs (plaintiffs) sued Puerto Rico, claiming Law 150 was federally preempted and unconstitutionally vague. The commonwealth moved to dismiss arguing that the court should abstain from considering plaintiffs’ vagueness claim under the Pullman doctrine which advises a federal court to abstain from considering a federal constitutional claim when it is based on an unsettled question of state law. The district court declined to decide this issue under the Pullman doctrine, citing the law’s unclear intent and deference to state courts.
After the district court ruling, plaintiffs sued in the Puerto Rico Court of First Instance, which held that Law 150 did not prohibit the use of discounts as incentives for cash payments if appellants complied with the applicable signage requirements and/or regulations. However, on Sept. 3, 2016, the Puerto Rico Court of Appeals reversed, finding that the Puerto Rico legislature “clearly intended to eliminate the possibility that two different prices for the same good or service could be imposed based solely on the method of payment.”
After the Puerto Rico Supreme Court declined to review, plaintiffs refiled in the district court of Puerto Rico in 2023. Plaintiffs again argued the CDA and the Durbin Amendment preempted Law 150. Puerto Rico moved to dismiss, contending that no conflict preemption exists between the CDA and the Durbin Amendment. The district dismissed the lawsuit, explaining that although the CDA’s stated purpose is to “encourage cash discounts,” a purpose statement cannot override a statute’s operative language. The court also noted that the Durbin Amendment regulates payment card networks — not states. The court did not address plaintiffs’ vagueness argument, finding that this complaint did not allege Law 150 is unconstitutionally vague.
On appeal, the panel affirmed the district court’s dismissal. First, the panel ruled the CDA does not preempt Law 150. Although plaintiffs cited the CDA’s purpose “to encourage cash discounts” as evidence of congressional intent to preempt any laws that prohibit discounts for cash payments, the panel emphasized that purpose statements cannot override a statute’s operative text. The panel found that Congress intended the Truth in Lending Act (TILA), which the CDA amended, to regulate credit card issuers — not merchants, states or territories. Because Puerto Rico is not a credit card issuer, TILA does not prevent it from restricting merchants from offering cash discounts. As a result, the panel held that Law 150 does not conflict with the CDA and is not preempted.
Second, the panel concluded the Durbin Amendment does not preempt Law 150. The Durbin Amendment provides that “a payment card network shall not … inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash.” According to the panel, the statutory text makes clear that Congress did not intend the Durbin Amendment to give merchants an absolute right to offer cash discounts. Instead, Congress aimed to regulate the conduct of payment card networks by preventing them from blocking merchants from offering lower prices to customers who pay in cash. The court stressed the Durbin Amendment’s language was unambiguous and, thus, the Durbin Amendment does not preempt Law 150.
Finally, the Court rejected plaintiffs’ argument that Law 150 was unconstitutionally vague and violated due process. The district court refused to consider this claim because plaintiffs failed to properly allege vagueness in their complaint. Because plaintiffs did not raise the claim correctly at the trial level, the panel determined that the claim is unpreserved for purposes of appellate review.
Bottom Line: The panel’s decision upholds Puerto Rico’s authority to regulate credit card surcharges at the state level.
Document: Opinion
