American Express can continue to insist that merchants who accept its cards do not prompt customers to use other credit cards — such as Visa and MasterCard — that take less of a cut out of the transaction, the U.S. Supreme Court ruled yesterday in Ohio et al. v. American Express et al., agreeing with a 2016 ruling by U.S. Court of Appeals for the Second Circuit.
In the 5-4 decision, “the justices upheld a lower court decision that had cleared the company of unlawfully stifling competition,” writes Reuters’ Andrew Chung. Eleven states — Iowa, Connecticut, Idaho, Illinois, Maryland, Michigan, Montana, Ohio, Rhode Island, Utah and Vermont — and the federal government “argued that anti-steering provisions kept fees artificially high, leading to higher retail prices even for people who do not use credit cards.”
But conservatives on the deeply divided court saw it differently.
“Writing for the court’s majority, justice Clarence Thomas said in the ‘two-sided’ market for credit card transactions, the states failed to show that the American Express system reduced the number of transactions or increased costs beyond a competitive level,” Chung continues.
“In this case, we must decide whether Amex's anti-steering provisions violate federal antitrust law. We conclude they do not,” … Thomas wrote in an opinion for himself and his conservative colleagues, chief justice John Roberts and justices Anthony Kennedy, Samuel Alito and Neil Gorsuch. Thomas said “Amex’s business model has spurred robust interbrand competition and increased the quality and quantity of credit-card transactions,” reports the AP’s Jessica Gresko for the Chicago Tribune.
“The high court said the proper approach was to evaluate AmEx’s model more broadly to take into account the cardholder side of the market, where AmEx-wielding consumers enjoy ‘a more robust rewards program, which is necessary to maintain cardholder loyalty and encourage the level of spending that makes AmEx valuable to merchants,’ Thomas wrote,” Brent Kendall and AnnaMaria Andriotis report for the Wall Street Journal.
A Bloomberg headline over Jennifer Surane’s story puts it slightly differently: “Supreme Court’s AmEx Ruling Hands Win to the Rich and Creditworthy.”
“Those rewards are a key part of banks’ strategy in fending off new competition from tech giants like Alipay and Amazon.com Inc., some of which seek to circumvent card networks and connect directly to consumer bank accounts,” Surane writes.
And the decision could have an huge negative impact in other sectors and businesses that aren’t rewarding their customers with the likes of travel points and Staples gift cards.
“Justice Stephen G. Breyer read his dissent from the bench, a rare move indicating profound disagreement. He said the implications of the ruling were vast and could hurt competition in many realms,” reports Adam Liptak for the New York Times.
“I particularly fear the interpretive impact of the majority’s discussion of what it calls ‘two-sided platforms,’ in an era when that term might be thought to apply to many internet-related goods and services that are becoming ever more important,” Breyer said.
“The National Retail Federation said the court's ruling will perpetuate a system that costs merchants and consumers billions of dollars annually,” writes Richard Wolf for USA Today.
“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,” NRF SVP and general council Stephanie Martz says in a statement.
“The ripples [of the decision] could be felt on the West Coast, with some arguing it would make it harder for antitrust enforcers to take on big online platforms like Google, Facebook and Amazon,” David McCabe writes for Axios.
NPR’s Chris Arnold offered an example of what American Express prohibits on “All Things Considered” last evening.
“Let's say you get the check at your local favorite restaurant, and you go to pay with American Express. If the waitress or the owner says, ‘hey, you know, if you could pay with a different type of card that would really help us out because Amex charges us higher fees,’ you might say, ‘sure, no problem; I'd be happy to do that.’ But American Express makes retailers sign an agreement saying that they promise not to steer customers towards other credit cards,” Arnold tells host Mary Louise Kelly.
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