American Express Anti-Steering Supreme Court Case
You may have heard that a case involving American Express is heading to the Supreme Court. The case, Ohio v. American Express, will determine whether businesses are allowed to suggest customers use lower cost credit cards when paying for purchases. Let’s take a look at the arguments on both sides and what the results of the case could mean for your business.
- Ohio v. American Express
- History of the Case – Lower Court Rulings
- How Ohio v. American Express Could Affect Your Business
- Is Amex really that much more expensive to accept?
- Reducing Costs for Taking Amex
Ohio v. American Express
American Express’ merchant agreement includes an “anti-steering” clause that prohibits businesses from encouraging customers to use a lower cost card when they try to pay with an American Express card. That rule is at the heart of the case. 11 states, led by Ohio, are challenging the rule on the grounds that it violates antitrust laws, which are designed to ensure fair competition. Previously, the Department of Justice has been involved in the lawsuits on the side of the states, but did not join the states in the appeal to the Supreme Court.
The States’ Argument
The states claim that American Express charges higher fees than the other credit card companies and that the anti-steering rule prevents competition by prohibiting businesses from suggesting that consumers use a card with cheaper fees.
American Express’ Argument
American Express argues that its rule ensures that Amex cardholders are not discriminated against when trying to pay for their purchases. The company further explains that the fees a business pays are used in part to fund consumer rewards programs, which appeal to cardholders.
In late summer 2017, the Department of Justice asked the Supreme Court not to take the Amex case, arguing that it needed to be addressed more fully in lower level courts. Despite that, the Supreme Court agreed to hear the case and will determine whether the American Express anti-steering provision violates federal antitrust rules.
The court is expected to hear arguments in early 2018 and rule by June of that year.
History of the Case - Lower Court Rulings
In 2015, a Brooklyn federal court sided with the states, finding that Amex violated antitrust laws in enforcing the anti-steering requirement. However, the US Court of Appeals for the Second Circuit later reversed that ruling, stating that Amex must balance businesses and cardholders as its clients and that the lower court had erred in not taking the cardholder side into account. Circuit Judge Richard Wesley, quoted by Reuters, wrote, “Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction.” Many cardholders are drawn to American Express due to the robust rewards programs the company offers; such programs are partially funded by the fees charged to businesses.
Bloomberg further clarifies that the court claims that the states failed to prove that cardholders are harmed by American Express’ rules.
How Ohio v. American Express Could Affect Your Business
The outcome of the case primarily affects businesses that want to steer customers to other credit cards. If you accept Amex but prefer that a customer use Visa or Mastercard, the Supreme Court’s ruling can affect whether you’re able to encourage customers (either verbally or through discounts) to utilize a different card. If the Supreme Court rules in Amex’s favor, you would not be able to encourage the use of other cards in place of Amex. If the Supreme Court rules in the States’ favor, you would be able to suggest a different card.
However, there’s no requirement to accept American Express. If the costs are too high for your business, an option would be to simply not accept American Express at all.
If you’re in an industry that takes a lot of American Express cards – such as B2B services, dining or entertainment with lots of corporate clients, etc. – then forgoing Amex may not be your best business decision. In those situations, it would make sense to focus more on ensuring that you’re getting the lowest possible Amex pricing for your business.
Is Amex really that much more expensive?
American Express has a reputation as the “expensive” credit card to take, a reputation that does have some validity. The cards have typically cost more to accept than Visa or Mastercard. However, in 2015, American Express rolled out a new pricing model, called OptBlue, designed to combat the higher fees and bring the cards closer in cost to other brands.
There’s a problem, though. Many businesses aren’t aware of OptBlue, which has allowed some processing companies to continue to charge higher fees and pocket the difference.
Related Article: OptBlue Pricing Backfires for Businesses.
In situations where businesses are charged on the OptBlue model and have a competitive markup with a reputable processor, the fees are closer to Visa and Mastercard’s than they have been in the past. Amex is still likely to be more expensive, but it’s not as large of a difference as it once was.
Reducing Cost to Accept American Express
If you accept American Express and think you’re paying too much, the first thing to do is identify if you’re eligible for OptBlue pricing and if you’re being charged accordingly. Businesses that process less than $1 million/year in American Express transactions are eligible for OptBlue. (Businesses processing more than $1 million/year in Amex will need a direct account with American Express.)
Once you determine if you’re eligible for OptBlue, you’ll need to find out if that’s the pricing model you’re on and what you’re paying for a markup. At the time of this article, most processors have switched businesses over to OptBlue or have the ability to do so. You can check your processing statement to locate the costs you’re paying for American Express transactions, and compare them to the costs for Visa and Mastercard transactions. A big difference between them could indicate you’re overpaying for Amex acceptance.
Need help determining if you’re paying too much for Amex? Get baseline pricing to see where you should be, and give us a call for expert analysis. Start here.