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The US Supreme Court ruled 5-4 yesterday that American Express was within its legal right to include in its contracts a stipulation that retailers cannot encourage customers to use other, less expensive forms of payment.

Joining in the majority were Chief Justice John G. Roberts Jr. and Associate Justices Anthony M. Kennedy, Clarence Thomas, Samuel A. Alito Jr. and Neil M. Gorsuch.

The New York Times writes that “the decision has implications not only for what one brief called ‘an astronomical number of retail transactions’ but also for other kinds of markets, notably ones on the internet, in which services link consumers and businesses … Justice Clarence Thomas, writing for the majority, said the specialized nature of credit-card transactions justified what in other circumstances might have been anti-competitive conduct.”

The Times goes on:

“Retailers pay so-called swipe fees when customers use credit cards. American Express charges higher fees than Visa or Mastercard, meaning that merchants have good reason to prefer those other cards.

But credit card networks create ‘two-sided platforms,’ Justice Thomas wrote, and they ‘differ from traditional markets in important ways.’ Since card companies deal with both merchants and consumers, he wrote, people challenging actions as anticompetitive must take account of the effect on both sets of market participants.

“Viewed that way, Justice Thomas wrote, American Express promoted competition by designing rewards programs to attract affluent customers. ‘Amex’s business model sometimes causes friction with merchants,’ he wrote. ‘To maintain the loyalty of its cardholders, Amex must continually invest in its rewards program. But, to fund those investments, Amex must charge merchants higher fees than its rivals.’

“‘Even though Amex’s investments benefit merchants by encouraging cardholders to spend more money, merchants would prefer not to pay the higher fees,’ Justice Thomas wrote. ‘One way that merchants try to avoid them, while still enticing Amex’s cardholders to shop at their stores, is by dissuading cardholders from using Amex at the point of sale’.”

The dissenting Associate Justices were Stephen G. Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan. The Times notes that Justice Breyer read his dissent from the bench, describing it as “a rare move indicating profound disagreement. He said the implications of the ruling were vast and could hurt competition in many realms.”

The Times quotes Justice Breyer as faulting “every part of the majority’s analysis. He said that the way American Express deals with merchants should be considered in isolation and that its contracts were anti-competitive.

Justice Breyer wrote: “If American Express’ merchant fees are so high that merchants successfully induce their customers to use other cards, American Express can remedy that problem by lowering those fees or by spending more on cardholder rewards so that cardholders decline such requests. What it may not do is demand contractual protection from price competition.”

In a response shortly after the decision was handed down, Hannah Walker, senior director of technology & nutrition policy at the Food Marketing Institute (FMI), stated:  “U.S. merchants pay an estimated $97 billion annually in hidden processing fees. These fees, particularly credit card fees, continue to increase unchecked every year and are hidden from consumers. We’re disappointed in the Court’s decision to prohibit retailers from discussing hidden fees with their shoppers as well as banning customer incentives to use a less expensive card at checkout. This decision stifles competition and throws a curtain on transparency in the credit card market, harming both consumers and retailers.”

Stephanie Martz of the National Retail Federation (NRF) released the following statement: “Today’s ruling is a blow to competition and transparency in the credit card market. 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.”
KC's View:
I’m now thinking that I probably should’ve gone to law school, because I have no idea what the hell Justice Thomas is talking about, nor why any of the points he made are more important than the clear anti-competitiveness of the Amex policy.

Retailers ought to be able to be transparent about the factors that go into the rices that shoppers pay. To prevent that kind of transparency protects one class, and victimizes the consumer … which strikes me as being a shame. I don’t get it. But then again, I didn’t go to law school … and I’m used to disagreeing with the some of the rulings made by SCOTUS.