Supreme Court to Determine the Transparency of Credit Card Fees
Today, the Supreme Court meets to determine if retailers have the right to inform customers about credit card processing fees. Currently, American Express has a contractual bond with merchants that prohibits them from telling customers about cheaper payment methods. Eleven states are suing the company, saying the contract violates antitrust laws.
Any time you make a transaction with your credit or debit card, the merchant has to pay a fee. This fee varies based on a number of factors, including your card provider and the merchant’s credit card processor. This is why some small businesses have a minimum transaction value for card payments. They could lose money on a small transaction if the profit margins are not high enough.
American Express is known for charging higher fees than other providers—sometimes a full 1% higher per transaction. That can add up to thousands of dollars each year for businesses with a high transaction volume.
There are two sides of the argument in Ohio vs. American Express Co. Merchants argue there is a need for transparency. Consumers have a right to know what the merchants are being charged and that less expensive alternatives exist. Merchants also claim the higher fees create the need for higher prices, which ultimately affects the consumer.
American Express argues that eliminating their anti-steering provisions would discourage competition. The company asserts one of the reasons they are able to maintain a strong credit card reward program is because of the extra money earned with these higher merchant fees. Eliminating the provisions would force the company to restructure its loyalty programs and cardholder fees.
Last month, a California federal appeals court ruled businesses could charge extra fees for credit card transactions. This makes consumers more aware of the fees and ensures businesses do not lose money just for accepting credit cards. In theory, this might open the door to higher fees for American Express transactions over Visa or MasterCard, depending on today’s hearing at the Supreme Court.