We’re getting a lot of news about the Supreme Court this week.
It’s all reasonably big news, of course. But the retirement of Justice Anthony Kennedy and the decisions on gerrymandering are drowning out something I’d like to draw attention to: what’s about to happen to credit card fees.
In a 5-4 decision Monday, the Supreme Court sided with American Express against many of the stores you shop at. It’s the end of an eight-year battle over something called “interchange fees” — the money that retailers (down to your local mom-and-pop stores) pay credit card companies for making it possible to pay with their cards.
The short of it is: American Express can require retailers to pay to play and also prohibit them from offering discounts to consumers who use competing credit cards. The ramifications are big. Yuge.
How interchange fees work
Credit cards aren’t magic. Every business, small and large, is losing a cut of every purchase you make with a credit card. Hence the phrase “cash is king” and minimum purchases at some smaller businesses.
That’s just the cost of doing business with consumers who don’t want to deal with ATMs and bulging wallets — and consumers who have gotten used to racking up rewards through their shopping. We’ve been carefully trained to make credit card companies money coming and going: The interchange fees paid by retailers when we buy their stuff, and the interest paid by us on our own purchases. In exchange, they dangle little carrots in front of us.
American Express has some nice organic, non-GMO, gluten-free supercarrots. The whole brand carries a bit of prestige, too. And they cash in on that cachet by charging higher fees than Visa, Mastercard, and the rest. To the point some businesses refuse to accept American Express. And others take Amex, but try to get people to use anything else.
That’s what this lawsuit was about. Amex writes into its contracts that retailers can’t do that — they have to treat all cards equally. Retailers claimed that was anticompetitive. The Supreme Court just disagreed: They argue American Express has enhanced competition by encouraging Visa and Mastercard to copy the rewards model.
The court also basically said there should be a higher threshold for considering “two-sided platforms” like credit card networks anticompetitive, since any change would affect both consumers and businesses.
What will change now?
The immediate likely effect is that all credit card companies will be emboldened; they just got implied permission to raise fees and dish out greater rewards for them.
For people who always pay their credit card bills in full and never have to worry about interest because they don’t carry a balance, this is good news. For people who care about credit card rewards and enjoy playing the game of finding the best conversion for your airline miles or when to use one card over the other, it’s great news.
For everybody else: It’s not so great. Nobody is going to get discounts for using their Visa or Mastercard instead of Amex anymore. And there could be worse news.
The dissenting Justices argued the court majority view on “two-sided platforms” could prove troublesome on the Internet.
“I particularly fear the interpretive impact of the majority’s discussion of what it calls ‘two-sided platforms,’ in an era when that term might be thought to apply to many internet-related goods and services that are becoming ever more important,” Justice Breyer said.
For example, the dissenting Justices wrote, what about a platform like Amazon? Businesses can sell there to consumers for a fee. Does that mean Amazon gets leeway to impose restrictions on discounts to consumers for shopping on those businesses’ websites directly? Or on other marketplaces like, say, Facebook?
It’s clear that, politics aside, the court doesn’t really get the Internet — and that’s likely to hurt consumers financially in the medium term. And the current pro-business bent is going to hurt poorer consumers in the near- and long term.
Article last modified on June 28, 2018. Published by Debt.com, LLC . Mobile users may also access the AMP Version: The Supreme Court Just Killed Some Consumer Discounts - AMP.
Article last modified on June 28, 2018. Published by Debt.com, LLC .