(Staff and Bloomberg)—The U.S. Supreme Court threw out a government lawsuit that accused American Express Co. of thwarting competition by prohibiting merchants from steering customers to cards with lower fees.
The justices, voting 5-4, said the U.S. government and 11 states failed to prove that the American Express rules harmed cardholders as well as merchants.
“Amex’s increased merchant fees reflect increases in the value of its services and the cost of its transactions, not an ability to charge above a competitive price,” Justice Clarence Thomas wrote for the court. The case divided the court along ideological lines, with the four Democratic appointees dissenting.
“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,” National Retail Federation senior vice president and general counsel Stephanie 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.”
The ruling preserves American Express’s high-fee business model and deals a blow to retailers looking to reduce the $50 billion in fees they pay to credit card companies each year. It’s a defeat for Discover Card Services, which said the rules undercut its ability to compete with American Express.
“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,” said Deborah White, Retail Industry Leaders Association general counsel and Retail Litigation Center president. “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.”
“The Supreme Court’s decision is a major victory for consumers and for American Express,” an American Express statement said. “It will help to promote competition and innovation in the payments industry.”
The case was being closely watched in Silicon Valley because of the prospect it could insulate tech giants like Facebook Inc. and Amazon.com Inc. (No. 1 in the Internet Retailer 2018 Top 500) from some antitrust suits.
“This ruling is a big win for American Express and has ramifications for the whole industry. Swipe fees are the engine that powers the whole credit card rewards game,” says CreditCards.com’s senior industry analyst, Matt Schulz. ” If merchants were allowed to give customers incentives to use cards with lower swipe fees, that could have been a game-changer. That would likely have led to card networks reducing those fees in order to remain competitive, and fewer swipe fees surely mean fewer rewards for credit cardholders.”
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