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Supreme court backs Amex in merchant fee dispute

Iowa and other states said American Express stifled competition

American Express chip credit cards are arranged for a photograph in Washington, D.C., on Oct. 16, 2017. MUST CREDIT: Andrew Harrer/Bloomberg
American Express chip credit cards are arranged for a photograph in Washington, D.C., on Oct. 16, 2017. MUST CREDIT: Andrew Harrer/Bloomberg

WASHINGTON — The U.S. Supreme Court on Monday sided with American Express and against Iowa and 10 other states, ruling the company’s policy of forbidding merchants from encouraging customers to use rival credit cards with lower fees does not violate federal antitrust law.

Handing American Express an important legal victory that validated a key component of its business model, the justices 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 and liberals dissenting. Major retailers panned it as bad for consumers.

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.

The business model of American Express depends primarily on merchant fees, while competitors such as Visa and MasterCard derive most of their revenues from interest on unpaid balances.

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.

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