Federal Credit-Card Statutes Do Not Preempt State Bans on Cash-Discount Pricing

Introduction

In Asociación de Detallistas de Gasolina de Puerto Rico, Inc. v. Commonwealth of Puerto Rico (1st Cir. May 29, 2025), a group of over 450 gasoline-station owners and operators in Puerto Rico challenged the Commonwealth’s prohibition on offering lower “cash‐discount” prices. After Puerto Rico’s legislature repealed the statutory provision that had expressly allowed cash‐discount pricing, retailers ceased dual pricing out of fear of fines and criminal penalties. They sued, claiming that federal credit‐card laws—specifically the Truth in Lending Act as amended by the Cash Discount Act (CDA) and the Durbin Amendment to Dodd-Frank—preempted Puerto Rico’s ban, and also that the statute was unconstitutionally vague. The First Circuit, affirming the district court’s dismissal, held that neither federal statute displaces the state regulation because the federal laws regulate only credit‐card issuers and payment‐card networks, not state restrictions on merchant pricing.

Summary of the Judgment

The First Circuit affirmed dismissal under Rule 12(b)(6). On preemption, it applied the obstacle-preemption framework and concluded that:

The Cash Discount Act amended the Truth in Lending Act to exclude cash discounts from “finance charges” when offered and disclosed universally, but it regulates only credit‐card issuers, not states or merchants.
The Durbin Amendment prohibits payment‐card networks from blocking cash discounts, but by its terms it controls only networks, not state legislatures.
Because neither statute confers an absolute right on merchants nor requires states to permit cash discounts, Puerto Rico’s ban presents no conflict.

On the vagueness claim, the court held that appellants never adequately pleaded it in their complaint, so the issue was not preserved.

Analysis

Precedents Cited

Grant’s Dairy-Me., LLC v. Comm’r (1st Cir. 2000): Introduced the “obstacle preemption” analysis—focusing on whether state law frustrates federal objectives.
Gade v. Nat’l Solid Wastes Mgmt. Ass’n (1992): Explained the three categories of preemption and the importance of statutory text and purpose.
Murphy v. NCAA (2018): Reinforced that obstacle preemption requires a clear conflict between state restrictions and federal objectives.
Sturgeon v. Frost (2019): Emphasized that statements of legislative purpose cannot override clear statutory language.
Various Truth in Lending Act cases (Frese v. Formella; Barchock v. CVS Health Corp.) to establish standards for construing TILA amendments.

Legal Reasoning

The court’s reasoning can be broken into three steps:

Identify the federal objective: Both the CDA and the Durbin Amendment sought to encourage the availability of cash discounts by removing disincentives within the credit‐card industry.
Examine statutory text:
- CDA/TILA amendments: Define “finance charge” and limit the disclosure requirements for credit issuers; apply solely to card issuers.
- Durbin Amendment: Restricts payment‐card networks from imposing rules that block cash discounts; applies solely to networks.
Assess conflict with state law: Puerto Rico’s ban on cash discounts does not regulate credit issuers or payment networks. Thus, merchants remain free to comply with federal pricing rules while adhering to state prohibitions. There is no direct conflict or impossibility of dual compliance.

Impact

This decision clarifies the limits of federal preemption in the credit‐card context:

States retain authority to regulate merchant pricing practices even when federal law broadly endorses cash discounts at the industry level.
Federal credit statutes preempt only those state measures that directly conflict with duties imposed on credit‐card issuers or payment networks.
Merchants challenging state bans must show that a federal statute confers an enforceable right on them or that compliance with state law prevents compliance with federal obligations.

In practice, retailers in other jurisdictions with anti-surcharge or cash-discount laws will find their preemption arguments constrained by this holding.

Complex Concepts Simplified

Obstacle Preemption: A form of implied preemption where state law “stands as an obstacle” to achieving Congress’s objectives in a federal statute.
Finance Charge: Under TILA, it is any cost imposed by a creditor for extending credit—interest rates, fees, etc.—which must be disclosed to consumers.
Cash Discount Act: A 1981 TILA amendment clarifying that discounts for paying in cash need not be listed as finance charges, thereby encouraging merchants to offer them.
Durbin Amendment: A Dodd-Frank amendment prohibiting payment-card networks from stopping merchants from offering cash discounts or penalizing them for doing so.
Pullman Abstention: A doctrine requiring federal courts to defer on federal constitutional questions when a state law’s meaning is unclear and may be clarified by state courts.

Conclusion

The First Circuit’s decision firmly establishes that federal credit-card legislation—while encouraging cash discounts at the industry level—does not preempt state laws that restrict or ban such discounts. Because the CDA regulates only credit issuers and the Durbin Amendment regulates only payment networks, Puerto Rico’s ban on cash-discount pricing imposes no direct conflict with federal obligations. This ruling preserves state power over merchant pricing and sets a clear boundary for future preemption challenges in the credit-card arena.