Dive Brief:
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A federal appeals court Monday overturned a lower court ruling effectively giving American Express Co. the go-ahead to block merchants from steering customers toward other companies’ lower-cost cards, Reuters reports.
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A federal judge in February 2015 had ruled that American Express’s policy of preventing retailers from guiding customers to less expensive forms of payment is “an unlawful restraint on trade.”
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The 2nd U.S. Circuit Court of Appeals in New York, which made the ruling Monday, said that the judge in the 2015 case, Nicholas Garaufis, erred because his focus was on merchants’ interests and not on consumers. Circuit Judge Richard Wesley, writing for the three-judge appellate panel, said consumers might be interested in availing themselves of American Express card benefits like rewards programs, according to Reuters.
Dive Insight:
Retailers are livid over credit card fees, and American Express presents them with a major challenge because their fees so often eclipse those of other cards.
Retailers' arguments against such fees are often couched in consumer-friendly terms — that the fees ultimately add to product prices that shoppers end up paying. But price, of course, is fungible. In reality, retailers may be hard-pressed to pass on such fees, especially those whose main appeal to customers is discounts or low prices.
In any case, that argument was turned on its head by this ruling, with the appellate court arguing that American Express may very well have what its cardholders want. "Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction," Circuit Judge Richard Wesley wrote for the panel, Reuters reported.
Lawyers for such retailers as Target and Wal-Mart had maintained that nixing American Express' anti-steering rules would boost competition and lower prices. The U.S. government and 17 states were on their side.
The Justice Department could appeal the latest ruling. A spokesman for the Justice Department declined comment to Reuters and The Wall Street Journal on whether they would be appealing the ruling.
In the meantime, the ruling allows American Express to stop retailers from steering consumers to lower-cost credit cards. American Express hailed the ruling: "Consumers will be able to choose how they pay and our card members will not be discriminated against at the point of sale," spokesperson Marina Norville said.