The U.S. Supreme Court issued a blow to retailers on Monday, ruling in favor of American Express in a lawsuit about the demands the credit card company places on merchants.
In a 5-4 decision, the court ruled that the company did not violate federal antitrust laws by requiring that its contracts include “anti-steering” clauses that block business owners from encouraging customers to use lower-fee credit cards like Visa, MasterCard or Discover.
Swipe fees — the term for the fees that merchants pay to credit card companies, banks and payment processors on card and mobile transactions — are big business, adding up to more than $90 billion per year nationwide, according to the Nilson Report, a payments industry newsletter. American Express collects a higher percentage of each transaction than its competitors, effectively charging merchants more for access to its wealthier clientele.
Justice Clarence Thomas wrote the majority opinion in the case, siding with the court’s four conservative judges. He concluded that Amex’s “two-sided platform” model — in which it provides a service to both cardholders and merchants — means that it must strike “the optimal balance” of prices charged on each side “to maximize the value of [its] services and to compete with [its] rivals.”
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“To maintain the loyalty of its cardholders,” he wrote, “Amex must continually invest in its rewards program. But to fund those investments, Amex must charge merchants higher fees than its rivals.”
The National Retail Federation came out strongly against the ruling, which came just days after the court handed a win to brick-and-mortar retailers in a case about online sales tax, arguing in a statement that in denying merchants the opportunity to ask or provide an incentive for an alternate form of payment, it has “undermined the principle of free markets.”
“Today’s ruling is a blow to competition and transparency in the credit card market,” said Stephanie Martz, senior vice president and general counsel of the National Retail Federation. “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.”
Justice Stephen G. Breyer was similarly critical in the dissenting opinion, contending that the “two-sided platform” definition should not allow the company to restrict competition on either side of the transaction, and could have wide-ranging implications “in an era when that term might be thought to apply to many internet-related goods and services that are becoming ever more important.”
Some insiders have also suggested that the ruling could mean merchants that are now unable to encourage shoppers to use lower-fee cards will feel compelled to pass on extra costs to consumers. In other words, shoe lovers could end up paying more for their must-have wares.