By: Scott Blakeley
In March of this year, the U.S. Supreme Court made a significant ruling finding that New York no-surcharge violated commercial free speech. The U.S. Supreme Court has on its docket the legal issue whether suppliers accepting multiple card brands may steer card paying customers to a cheaper card brand, thereby trying to limit their cost of acceptance (or the customer’s cost if surcharged). The litigation involves a provision in the AmEx merchant agreement that bars merchants (suppliers) from steering customers to a lower-priced brand and whether it violates the Sherman Antitrust Act.
Credit Cards Are Customer Preferred Payment Form in B2B Space
Credit and finance teams appreciate that card use continues its steep rise, both with existing and new customers, and also appreciate cards are the most expensive payment channel. The credit team accepting multiple card brands (Visa, MasterCard, American Express, and Discover) often find a meaningful difference with card brands’ interchange fees.
For the credit team absorbing the interchange fee, as opposed to surcharging, the interest is to steer the customer to the least expensive card brand. However, the AmEx merchant agreement prohibits such merchant steering away from AmEx cards.
Does Merchant Agreement Rule Violate Antitrust Law?
The U.S. Supreme Court will consider whether AmEx’s merchant agreement which bars merchants (suppliers) from influencing customers to use card brands that charge lower interchange fees. The AmEx merchant agreement states that merchants (suppliers) that choose to accept AmEx cards cannot steer customers to other card brands, even if those brands are cheaper. Rather, AmEx requires merchants to accept all brands equally.
For case background, in 2010, the United States and the attorneys general of seventeen states brought an antitrust enforcement action against Visa, Mastercard, and AmEx, challenging its rules preventing suppliers from steering customers to cheaper cards, alleging that the rule constituted an anticompetitive restraint that violates the Sherman Act antitrust legislation. Visa and Mastercard settled, agreeing to remove the restriction. The District Court found that AmEx had breached the Sherman Act.
The District Court found that through this provision, AmEx harmed competition by preventing any meaningful means of controlling a merchant’s card acceptance costs, short of dropping acceptance of AmEx cards. In 2016, the 2nd Circuit Court of Appeals reversed the District Court’s ruling. If the U.S. Supreme Court reverses the Court of Appeals, a supplier can ask customers to use an alternative credit card brand. We expect a ruling Q1 or Q2 of 2018.
Scott Blakeley is a principal at Blakeley LLP, where he practices creditors’ rights and bankruptcy. His email: [email protected].
