• by Thom Forbes  @tforbes, October 17, 2017

Resuscitating a case dismissed by a federal appeals court in New York, the U.S. Supreme Court yesterday said it would consider a lawsuit by 11 states charging that American Express is being anticompetitive when it prohibits merchants from steering customers to credit cards that have lower fees. The Dept. of Justice, which originally was allied with the states, had most recently  argued against taking an appeal to the Supreme Court.

The “decision to take the case offers new hope to retailers trying to reduce the $50 billion in fees they pay to credit-card companies each year. It’s a boost for Discover Card Services, which says the rules undercut its ability to compete with American Express,” points outBloomberg’s Greg Stohr.

“‘Whether assessed from the perspective of consumers or from that of merchants, this case’s importance cannot be overstated,’ Ohio officials argued for the group,” Stohr writes. 

“The court will hear arguments in Ohio v. American Express, 16-1454, during the winter,” according to the Associated Press. The other 10 states active in the appeal are Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Montana, Rhode Island, Utah and Vermont.

The Obama administration and 17 states originally “sued American Express in 2010 alleging that the company's anti-steering contract requirement obstructs merchants from using competition to try to keep credit card fees from increasing,” Andrew Chang reports for Reuters. 

“The Trump administration said it agreed with the states, but still urged the Supreme Court to reject the case. The administration said the justices should let the issue percolate in the lower courts,” the AP reports.

American Express “enacted the rules after Visa and MasterCard started running advertising campaigns in the 1980s targeting American Express’s smaller acceptance network and higher merchant fees, according to court documents,” Lydia Wheeler reports for The Hill.

“The states argue that the company’s rules have had the actual market effect of raising the amount that the industry charges merchants,” Wheeler continues. “American Express, however, says its rules have allowed it to compete in a market where Visa and MasterCard command a combined share of 68% of credit card transactions.”

“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,” the Second Court of Appeals said in its decision, Wheeler reports.

“A number of companies backed the states' appeal in the American Express case, including supermarket and drugstore chains Kroger Co. and Walgreens, which said credit card fees are among their largest and fastest-growing expenses,” Reuters’s Chang reports.

“Southwest Airlines Co. said in a legal brief that American Express had 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,’” he  continues.

The Retail Litigation Center praised the decision to hear the case.

“The growing chorus of skepticism from the high court is an important signal that the lower courts should exercise vigilant oversight of the practices that credit card companies adopted to increase their profits at the expense of healthy competition,” RLC president Deborah White said in a statement.

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

AmEx said it would “continue to vigorously defend the Second Circuit’s decision in favor of American Express” in its own statement. “The stakes are high for AmEx. The fees it charges retailers are often higher than for other cards. Some merchants choose not to accept AmEx cards as a result,” observe AnnaMaria Andriotis and Brent Kendall for the Wall Street Journal.

“AmEx in recent years has been working on raising its merchant acceptance in part by lowering its so-called swipe fees. Still, a ruling against the company’s current policy could lessen the number of AmEx card transactions and related revenue. AmEx has said in recent securities filings that losing the case could have a material adverse effect on its business,” they report.

The Supreme Court’s announcement certainly had a material adverse effect on AXP’s stock price. It dropped 0.97% Monday.