Supreme Court says retailers can’t encourage shoppers to use credit cards with lower processing fees
The National Retail Federation said U.S. Supreme Court decision in favor of American Express rules that prevent retailers from encouraging the use of other credit cards with lower processing fees will perpetuate a system that costs merchants and consumers billions of dollars a year.
“(June 25'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.
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.
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 brief filed 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.