Regulation

The Supreme Court Will Decide American Express' Antitrust Case

The American Express antitrust case is back — and is now going to the court of last resort.

Yesterday (Oct. 16), The U.S. Supreme Court agreed to determine — once and for all — whether American Express is in violation of U.S. antitrust law because it forbids merchants that accept cards other than theirs from steering consumers to other, lower fee-carrying, cards.  The case is led by the state of Ohio and is joined by 11 other states.

American Express charges higher card processing fees relative to the other card networks — and, as a result, brings in more revenue per swipe than its competitors (according to the filings of the states suing Amex). According to Reuters, American Express accounts for about 26 percent of all U.S. credit card transactions.

Starting in the 1980s, rival card networks Visa and Mastercard began directly advertising the benefits of their lower-fee cards to both merchants and consumers. American Express responded by tightening its contract provisions with its partner merchants in what it called an attempt to “stop discrimination against its cards” — by banning merchants who take American Express from steering or incentivizing their customers to use a lower payment method.

In 2010, 17 states led by the Obama administration sued American Express on the theory that those anti-steering rules were actually a violation of antitrust laws because they prevent merchants from using competition as a tool by which to keep swipe fees down. Merchants, on average, pay over $50 billion per year  in swipe fees — and almost none of them like it.

The first round of that lawsuit saw a trial court agreeing with the plantiff's case and finding that American Express' policies lead to higher prices for both merchants and consumers. However, that ruling was reversed in 2016 by the 2nd U.S. Circuit Court of Appeals in New York, which found that if merchants did not want to agree to American Express' terms, they simply did not have to accept American Express in their stores, which offed them a perfectly valid way to use competition to attack swipe fees.

The states — specifically, Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Montana, Ohio, Rhode Island, Utah and Vermont — did not like that ruling and appealed to the Supreme Court, which has now accepted the case.

American Express has confirmed it will “vigorously defend” the 2nd Circuit Court's ruling as it  “protects a consumer’s right to choose how they pay, prevents our card members from being discriminated against and promotes competition in the payments industry.” American Express also asserted in court filings that lower credit card swipe fees would actually lower the benefits on offer for consumers.

"AmEx uses the vast majority of merchant discount fee revenue to pay valuable benefits to cardholders to incentivize them to obtain and use an AmEx credit card at that merchant rather than cards issued on other networks," the company argued.

But the states have their backers in their appeal as well — and some pretty big-named one at that.  Kroger and Walgreens have both argued that card fees are among their largest and fastest-growing expenses. Southwest Airlines — in an amicus brief submitted to the court on the states’ behalf — argues that Amex has insulated itself from competitive market forces, resulting in “hundreds of millions (if not billions) of dollars in excess costs incurred by Southwest, other merchants, and their customers.”

The lawsuit that is now going to the Supreme Court originally targeted Visa Inc. and Mastercard Inc. over their anti-steering policies as well. Those two companies settled the claims in 2011 by agreeing to change their rules.

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The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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