In a five to four ruling, the U.S. Supreme Court yesterday backed American Express and its rules prohibiting retailers from steering customers to use other, less expensive credit cards. The response from retail organizations was swift, with the Food Marketing Institute (FMI) saying it was “disappointed” with the ruling and the National Retail Federation calling it a “missed opportunity.”
“U.S. merchants pay an estimated $97 billion annually in hidden processing fees,” said Hannah Walker, FMI senior director of technology and nutrition policy, citing a recent Nilson Report. “These fees, particularly credit card fees, continue to increase unchecked every year and are hidden from consumers. We’re disappointed in the Court’s decision to prohibit retailers from discussing hidden fees with their shoppers as well as banning customer incentives to use a less expensive card at checkout. This decision stifles competition and throws a curtain on transparency in the credit card market, harming both consumers and retailers.”
“Today’s ruling is a blow to competition and transparency in the credit card market,” said NRF SVP and General Counsel Stephanie Martz. “The American Express rules in question have amounted to a gag order on retailers’ ability to educate their customers on how high swipe fees drive up the price of merchandise.
“By denying merchants the right to simply ask for another card or offer an incentive for using a preferred card, the Supreme Court has undermined the principle of free markets where one company should not be allowed to dictate the practices of an entire industry in order to protect its business model. This misguided decision represents a missed opportunity to take a stand in favor of free markets and bring soaring credit card fees under control.”
Credit card swipe fees average about 2 percent of a transaction, but American Express has traditionally had higher fees, with Visa and MasterCard in the middle and Discover the lowest. Amex, Visa and MasterCard all used to have rules prohibiting merchants from encouraging customers to use lower-fee cards, but Visa and MasterCard dropped the restriction in a 2010 settlement with the Justice Department.
Amex refused to do the same and was sued by the Justice Department. A U.S. District Court judge ruled in 2015 that the Amex rules were a violation of federal antitrust law. Amex appealed, and a three-judge panel of the 2nd U.S. Circuit Court of Appeals ruled in its favor in 2016. Eleven states that had joined the Justice Department lawsuit appealed to the Supreme Court, which agreed to take the case last fall.
NRF has argued in court that the Amex rules have helped the card company avoid pressure to reduce the fees it charges merchants and, in turn, has reduced incentives for Visa, MasterCard or Discover to do the same. In a friend-of-the-court brief filed late last year, NRF and other retail groups said the Amex rules “lead to increased prices for all consumers.”