Court: American Express Can Stop Stores From Steering Customers To Less-Expensive Cards

Image courtesy of The.Comedian

When you pay with a credit card, you’d probably like to know if you could save money by using one type of card over another. However, stores that accept American Express are barred from steering customers toward less-expensive cards. Last year, a federal court ruled that AmEx’s policy violates antitrust laws, but today a federal appeals court overruled that decision.

The original lawsuit was filed by the U.S. Justice Department and attorneys general for more than a dozen states. They alleged that the so-called “anti-steering” or non-discrimination provisions (NDP) of the AmEx merchant agreement prevent more than 3 million merchants in the U.S. from pointing their customers to use other cards — like those on the Visa, MasterCard, and Discover networks — that charge lower fees to merchants for each transaction.

In Feb. 2015, a District Court ruled in favor of the plaintiffs, finding that AmEx’s restrictions run counter to the standard way that retailers do business.

“Merchants routinely attempt to influence customers’ purchasing decisions, whether by placing a particular brand of cereal at eye level rather than on a bottom shelf, discounting last year’s fashion inventory, or offering promotions such as ‘buy one, get one free,’” read the 2015 ruling.

The judge said that because of these NDPs, merchants could not nudge a customer toward using a card on a less-expensive network by, for example, offering a 10% discount for using a Visa card. As a result, concluded the lower court, consumers likely paid higher prices for goods and services from these merchants. Additionally, the court found that these agreements put up a barrier to entry for competitors hoping to distinguish themselves by charging the the least.

That was 2015. This is now.

Today, the Second Circuit Court of Appeals ruled [PDF] that the District Court judge did not have sufficient evidence that the net effect — on both merchants and consumers — of these restrictions was an unreasonable restraint on trade.

“The District Court erred here in focusing entirely on the interests of merchants while discounting the interests of cardholders,” reads today’s decision. “This approach does not advance overall consumer satisfaction. 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. Indeed, many merchants have already made and continue to make this choice.”

The lower court had found that AmEx hiked fees on their cards, but that these “price increases were not wholly offset by additional rewards expenditures or otherwise passed through to cardholders.”

However, the appeals court panel unanimously said that a fee hike doesn’t need to result in a one-to-one boost in benefits to be in accordance with the law.

“A finding that not every dime of merchant fees is passed along to cardholders says nothing about other expenses that Amex faces, let alone whether its profit margin is abnormally high,” explains today’s orders.

In addition to the DOJ, the plaintiffs group included the attorneys general of Maryland, Missouri, Vermont, Utah, Arizona, New Hampshire, Connecticut, Iowa, Michigan, Ohio, Texas, Illinois, Tennessee, Montana, Nebraska, Idaho, and Rhode Island.