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American Express Anti-Steering Not Anti-Competitive

By George Khoury, Esq. on June 27, 2018 | Last updated on March 21, 2019

In a case brought by Ohio, and other states, charging American Express with anti-competitive behavior for the anti-steering provisions contained in its merchant agreements, the High Court found that the card people don't want to leave home without wasn't really doing anything wrong at all.

The challenge alleged that AMEX had violated section 1 of the Sherman Antitrust Act, which prohibits unreasonable restraints on trade. The petitioners claim that by charging merchants higher fees than other credit card companies, AMEX is increasing the costs to all consumers for goods and services as merchants must adjust their prices upward to account for those higher fees. The High Court wasn't buying it though.

Fantastic Plastic Fees

Though AMEX is known for having a wealthier card-member base, its merchant services contracts prohibits merchants from requesting, or providing incentives or discounts for, customers to use other cards with lower merchant fees. Those prohibitive terms in their agreements was what the many states had alleged was anti-competitive -- though, on its face, it seems anti-competitive to AMEX as merchants would be less likely to accept the higher merchant fees and restrictive contract terms.

Curiously, though AMEX tells its members "not to leave home without it," the High Court noted that it is accepted by fewer merchants than its competitors because of the higher fees. As the Court's majority explained:

" ... at merchant locations where Amex is not accepted and, thus, Amex's antisteering provisions do not apply. This suggests that the cause of increased merchant fees is not Amex's antisteering provisions, but rather increased competition for cardholders and a corresponding marketwide adjustment in the relative price charged to merchants."

Credit to Dissent

As Justice Breyer explained in his dissent, the contractual provision in question is clearly anti-competitive. Additionally, Breyer notes that the majority incorrectly lumps credit card holders and merchants into one category of credit card consumers. He, along with Justices Ginsburg, Sotomayor, and Kagan, believe that the analysis would turn out differently if the groups were considered individually.

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