Today, the trade associations for America's most recognized retailers, filed a joint amicus brief in Ohio, et al. v. American Express. The case, currently before the U.S. Supreme Court, considers the legality of American Express (Amex) rules that prevent retailers from offering benefits, including discounts, to consumers for using cards with lower fees, or even educating consumers about those fees. The brief was filed on behalf of the Retail Litigation Center (RLC), National Retail Federation (NRF), National Association of Convenience Stores (NACS), Food Marketing Institute (FMI), National Grocers Association (NGA), National Association of Shell Marketers, Inc. (NASM), and the Retail Industry Leaders Association (RILA).
Amex, Visa and MasterCard once all had rules prohibiting merchants from encouraging customers to use lower-fee credit cards. Visa and MasterCard dropped the restriction in a 2010 settlement with the Justice Department. Amex refused to do the same, and was sued by DOJ, as well as 11 states. A U.S. District Court judge ruled in February 2015 that the Amex rules violated federal antitrust law and enjoined them, but Amex appealed and a three-judge panel of the 2nd Circuit ruled in its favor. Eleven states petitioned the U.S. Supreme Court to re-consider the lower court's decision. In October of this year, SCOTUS agreed to hear the merits of this case.
"Marketplace competition is the hallmark of the retail industry. Unfortunately, it is largely absent from the credit card market where fees continue to skyrocket. These fees—forcibly hidden from the consumer by credit card companies—are among the highest costs of doing business for America's retailers. Retailers should have the right to offer consumers benefits for using cards with lower fees," said Deborah White, senior executive vice president and general counsel for RILA and president of the RLC.
"Transparency is a vital first step toward bringing credit card swipe fees under control. These rules amount to a gag order on retailers educating their customers about the high cost of credit card fees or encouraging them to use cards that carry lower fees. As long as rules like these are allowed to remain in place, credit card fees will continue to drive up costs for retailers and the prices paid by consumers," NRF Senior Vice President and General Counsel Stephanie Martz said.
"Information is power – and preventing merchants from sharing useful, money-saving information with consumers only adds to the already immense market power acquired and long abused by the credit card giants. The Supreme Court has an opportunity to strike a blow for competition by barring American Express from using that power to benefit itself by reducing choice for consumers while driving up costs for merchants," stated Lyle Beckwith, senior vice president, government affairs for NACS.
"Our argument urges for competition and transparency in the credit card market. For the first time, food retailers will be able to have a conversation with their customers about card fees and find new, creative ways to contain cost when previously we had no ability to do so," said FMI chief public policy officer & senior vice president of government relations, Jennifer Hatcher.
"The lack of competition in the payment card industry, where interchange fees and operating rules continue to hamper merchant's ability to steer consumers to a lower cost of acceptance, continues to harm the supermarket industry. AMEX's refusal to allow merchants to make its fees transparent to consumers and encourage them to use a lower fee card or other form of payment runs counter to free market principles. Consumers would benefit from increased competition and allowing merchants to offer incentives to use cards with a lower cost of acceptance," said Greg Ferrara, senior vice president of government relations and public affairs for the National Grocers Association.
"Because of the highly-competitive retail gasoline marketplace, excessive credit card transaction fees are of great concern to NASM's members and to all petroleum marketers. The Amex anti-steering rules have inhibited competition among credit card companies to the detriment of both marketers and consumers. They should not be allowed," Matt Sawyers, executive director of the National Association of Shell Marketers said.
The groups' amicus brief details the impact that Amex anti-steering rules have on consumers and merchants alike. Retailers have long said Amex's rules are an antitrust violation that deny consumers transparent information about their credit cards and prevent merchants from offering their customers benefits and incentives on credit card purchases.
The brief states:
Amex prohibits merchants from truthfully telling their customers that Amex is a higher-fee credit card. It likewise prohibits merchants from giving their customers any incentive to pay with lower-fee cards…Amex's so-called Non-Discrimination Provisions (NDPs)—actually restrain competition among card networks, cause merchants to pay them higher fees, and lead to increased prices for all consumers whether they pay by card, cash, check, or using government benefits.
The brief highlights the fact that Amex's rate increases between 2006 and 2010 resulted in "$1.3 billion in incremental pre-tax income" for Amex with little return for cardholders. The brief states that Amex spends "less than half of the discount fees it collects from merchants on actual cardholder rewards" and deprives Amex cardholders of the chance to decide whether she wants to get the rewards for a given purchase from the card issuer or whether she would rather get some sort of reward from the merchant.
The groups argue that Amex's restraint of trade caused price distortions that prevented competition, resulting in dramatically raised prices for merchants and consumers, erected barriers to market entry, and stifled innovation and that Amex's conduct distorts the competitive process.
The brief states:
On the merchant side, Amex has prevented other card networks from competing on price. On the cardholder side, Amex prohibits consumers from receiving truthful information and the price signals that they would ordinarily receive in a competitive market…As we move ever closer to a purely electronic economy, the opportunities and incentives for those with market power to throttle competition will be manifold. This Court should not invite such abuses.
The brief, drafted by Mark Stancil, Matthew Madden and Hunter Smith of Robbins, Russell, Englert, Orseck, Untereiner, & Sauber LLP, can be read here.