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U.S. Supreme Court Backs American Express in Merchant Fee Dispute

June 25, 2018 / Source: U.S. News

WASHINGTON (Reuters) - The U.S. Supreme Court on Monday sided with American Express Co, ruling that the company's policy of forbidding merchants from encouraging customers to use rival credit cards with lower fees does not violate federal antitrust law.

Spurning a group of states that had sued American Express, the court upheld a lower court decision that had cleared the company of unlawfully stifling competition through so-called anti-steering provisions in its contracts with merchants. The decision was 5-4, with the court's conservative justices in the majority.

American Express shares were up as much as 2.3 percent in Monday morning trading on the New York Stock Exchange.

The states, backed by President Donald Trump's administration, had argued that anti-steering provisions kept fees artificially high, leading to higher retail prices even for people who do not use credit cards. So-called swipe fees paid to credit card companies each time a consumer uses a card for a purchase are a major expense for merchants who annually pay more than $50 billion to process such transactions.

New York-based American Express charges merchants higher fees relative to the other credit card networks, and generates more revenue, according to legal papers filed by the states.

The business model of American Express depends primarily on merchant fees, while rival companies derive most of their revenues from interest on unpaid balances. American Express has said these fees fund the additional benefits it offers its cardholders compared to competitors.

As a result of advertising campaigns in the 1980s by competitors Visa Inc and MasterCard Inc aimed at convincing merchants and consumers to use cards with lower fees, American Express tightened contract provisions with merchants to stop what it called discrimination against its cards.

American Express, which accounts for about 26 percent of all U.S. credit card transactions, said in legal papers that merchant fees and anti-steering measures are essential to compete with Visa and MasterCard, which are offered by most banks and are so ubiquitous that it is almost “inevitable” that a bank customer will be issued one of those cards.

(Reporting by Andrew Chung; editing by Grant McCool)

Copyright 2018 Thomson Reuters.