SCOTUS rules against consumers

Gina Acosta
Executive Editor
Gina Acosta profile picture
In a five to four ruling, the Supreme Court said Amex rules regarding its services for merchants don't violate federal antitrust law.

Retailers are blasting a Supreme Court decision in favor of American Express rules that prevent merchants from encouraging the use of other credit cards with lower processing fees.

In a five to four ruling, the Supreme Court said Amex rules regarding its services for merchants don't violate federal antitrust law.

“Today’s ruling is a blow to competition and transparency in the credit card market,” NRF Senior Vice President and General Counsel Stephanie Martz said. “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,” Martz said. “This misguided decision represents a missed opportunity to take a stand in favor of free markets and bring soaring credit card fees under control.”

When consumers use a credit card to make a purchase, merchants are charged a “swipe” fee to process the transaction. The fees are a percentage of the transaction and add up to more than $70 billion a year nationwide. Card industry rules have effectively forced retailers to build the fees into the price of merchandise, increasing costs for consumers by hundreds of dollars a year for the average family.

“U.S. merchants pay an estimated $97 billion annually in hidden processing fees. 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,” said Hannah Walker, FMI senior director of technology & nutrition policy.

The fees average about 2 percent of the 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, but 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.

“Today’s decision is a loss for American consumers,” said Deborah White, RILA general counsel and Retail Litigation Center president. “Competition in the credit card space is sorely lacking. The Court’s decision to uphold the Second Circuit’s misguided approach will allow AmEx to continue to stifle competition and prevent consumers from understanding the cost of rising credit card fees. Nonetheless, RILA and the RLC are dedicated to increasing competition in the payments market and will continue our efforts to fight the card companies’ anti-competitive rules on multiple fronts.” 

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 brieffiled late last year, NRF and other retail groups said the Amex rules “lead to increased prices for all consumers.”

NRF has led the retail industry’s fight against high swipe fees for years, calling for increased transparency and competition that would lead to lower fees. The industry has refused, with each of the thousands of banks that issue credit cards generally charging the same fees for a given brand and type of card.