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Public Policy

'Do You Have Another Card?' Could Be New Question at Checkout

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Retailers could soon be free to ask customers to use a different card when credit cards with high swipe fees are presented at the cash register.

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A federal judge ruled last week that American Express contract provisions barring retailers from encouraging consumers to use other brands of cards — including those with lower fees — are a violation of antitrust laws. Visa and MasterCard used to have similar rules but dropped them in a 2010 settlement with the Justice Department that AmEx refused to join.

Swipe fees average about 2 percent, but AmEx has traditionally had the highest fees, with Visa and MasterCard in the middle and Discover the lowest. Debit card fees are generally lower, capped by the Federal Reserve at a flat fee of 21 cents per transaction.

Since swipe fees drive up the cost of merchandise, “a lower-income shopper who pays for his or her groceries with cash” subsidizes “the premium rewards conferred by American Express on its relatively small, affluent cardholder base,” U.S. District Court Judge Nicholas Garaufis said. If retailers could lower their swipe costs by steering customers toward lower-fee cards, “some amount of the savings” could be passed along as lower prices, he said.

"It vindicates what we've said all along."
NRF General Counsel Mallory Duncan

NRF Senior Vice President and General Counsel Mallory Duncan said the ruling could help bring about competition in the card market, where swipe fees are non-negotiable and cost retailers around $50 billion a year.

“This is a pretty important step forward,” Duncan said. “It vindicates what we’ve said all along — that the credit card market is broken and the consequence has been high fees for merchants and consumers.”

“Allowing retailers to ask consumers to use a less expensive card will result in lower prices for consumers and a fairer market for the fees merchants currently pay,” the NRF-chaired Merchants Payments Coalition said.

AmEx said that eliminating its “non-discrimination” provisions would “inhibit consumers’ choice to pay with their preferred payment method” and “harm competition by further entrenching” Visa and MasterCard. Rather than ordering AmEx to drop the provisions, Garaufis asked AmEx and the Justice Department to submit proposals on how to change the company’s practices. AmEx said it plans to appeal.


Swipe Fees
Swipe Fees

Credit and debit card swipe fees cost retailers and their customers $30 billion each year.

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