American Express’ (AXP) practice of barring stores from steering shoppers to using cards with lower swipe fees than its own is legal, the Supreme Court ruled on Monday, handing the retail industry a setback.
The Justice Department and 12 states had challenged the AmEx policy that blocks retailers from offering discounts or other incentives to use a different charge or credit card, calling it anti-competitive. That approach is one of the key pillars of American Express’ business model, predicated on its ability to charge the higher fees because AmEx has the higher income shoppers retailers and other businesses covet.
Stores, restaurants and other businesses pay card issuers swipe fees anytime a consumer pays with a card. AmEx charges higher fees, which are the biggest component of its revenues, and as a result is accepted at fewer establishments than Visa or MasterCard.
Justice Clarence Thomas, who wrote the majority opinion, said the government had not proved that AmEx policy had “anti-competitive” effects. “Amex’s business model has spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions. And it is “[t]he promotion of interbrand competition,” he wrote in the decision posted to the SCOTUS blog site.
The decision was panned by the retail industry’s two primary trade groups, the National Retail Federation and the Retail Industry Leaders Association. They bemoaned a practice that they said raises costs for consumers.
“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,” Stephanie Martz, the NRF’s senior vice president and general counsel said in a statement.
The case dates back to 2010, when the Justice Department and a number of states sued AmEx, saying its practice led to higher retail prices. The Supreme Court decision was split along ideological lines, with Thomas joined in the 5-4 decision by Chief Justice John Roberts and Justices Anthony Kennedy, Samuel Alito and Neil Gorsuch, all seen as conservative justices on many issues.