trending Market Intelligence /marketintelligence/en/news-insights/trending/A4l2tYQfqwCAeBzfQ2MPsw2 content esgSubNav
In This List

Retailers closely watching Supreme Court case involving American Express


Highlighting the Top Regional Aftermarket Research Brokers by Sector Coverage


Insight Weekly: PE firms shift strategies; bank earnings kick off; bankruptcies plummet


Bed Bath and Bankruptcy Using Quantitative Credit Models to Predict Corporate Defaults


Banking Essentials Newsletter: January 11th Edition

Retailers closely watching Supreme Court case involving American Express

Retailers are hopeful that a recent Supreme Court decision to take up a case involving credit card rules could lead to lower swipe fees for merchants.

On Oct. 16, the high court said it will take up Ohio, et al. v. American Express, an appeal by 11 states that argue that rules Amex imposed to prohibit retailers from encouraging customers to use credit cards with lower swipe fees violate antitrust laws.

Deborah White, president of the Retail Industry Leaders Association's Retail Litigation Center, charged in an Oct. 16 news release that the American Express Co. rules are an antitrust violation and deny customers truthful information about credit cards. This prevents them from taking advantage of retailer benefits, she added. Credit and debit card swipe fees for retailers total more than $50 billion per year, according to the National Retail Federation.

"While intense competition is a hallmark of the retail industry, it is largely absent from the credit card market where fees continue to skyrocket," White said. "These fees — largely hidden from the consumer — are among the highest costs of doing business for America's retailers."

American Express defended its policies and pointed to a ruling by the 2nd U.S. Circuit Court of Appeals in New York, which ruled in its favor in the protracted legal dispute.

"As we have stated previously, the earlier decision by the Second Circuit panel 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 said in an emailed statement provided to S&P Global Market Intelligence. "We believe the government's claims lack merit and we will continue to vigorously defend the appeals court's decision in favor of American Express."

According to the retail litigation center, American Express, Visa Inc. and Mastercard Inc. had rules prohibiting retailers from encouraging customers from using cards with lower fees, but Visa and MasterCard dropped those rules in a 2010 settlement with the U.S. Justice Department.

American Express, however, chose not to settle and decided to fight instead. The company was subsequently sued by the states involved in the case, as well as the Justice Department.

In February 2015, a U.S. District Court judge ruled that the American Express rules were a violation of federal antitrust law, but an appeal by the credit card company eventually led to the 2nd circuit ruling in its favor in September 2016.

In his ruling, circuit Judge Richard Wesley said the government must prove that the American Express rules reduced the quality and quantity of credit card purchases in order to show how shoppers and sellers are affected.

"Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction — and if a particular merchant finds that the cost of Amex fees outweighs the benefit it gains by accepting Amex cards, then the merchant can choose to not accept Amex cards," Wesley wrote.

Ohio, Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Montana, Rhode Island, Utah and Vermont filed an appeal of that circuit court decision to the Supreme Court.

In their writ of certiorari filed in June, the states said that American Express stipulates that merchants that accept its cards may not "indicate or imply" a preference for non-American Express methods of payments or "persuade or prompt . . . any other method of payment." The states argue these anti-steering provisions block merchants from encouraging customers to use cards other than American Express, such as Visa or MasterCard, even when the card is less expensive for the merchant to accept.

The Retail Litigation Center filed an amicus brief in support of the states in July, noting that the rules cost both consumers and retailers more, and urged the Supreme Court to reconsider the lower court's decision. The Supreme Court is scheduled to take up the case at some point in this term, which began Oct. 2.

"Though many RLC members compete with one another for customers, they are united here in the view that Amex's anti-steering rules inflict significant harm to their business and to the national economy," the group wrote.

The Supreme Court's decision to take up the case follows a different swipe fee victory scored by retailers earlier this year. In May, a provision that would have repealed debit card swipe-fee cap reform made under the Dodd-Frank Act was removed from the Financial CHOICE Act, which retailers said will save sellers and consumers billions of dollars.