WASHINGTON — Retailers have applauded two Supreme Court actions in cases regarding credit cards.
Late last month the court overturned a ruling barring retailers from imposing a surcharge on credit card use, sending the case back to a lower court.
Two days earlier, the Supreme Court justices declined to hear a bid to resurrect a $7.25 billion antitrust settlement of price fixing charges against Mastercard Inc. and Visa Inc.
The National Retail Federation (NRF) welcomed the court’s refusal to reinstate the class-action lawsuit settlement, which would have blocked merchants from accusing Visa and Mastercard of fixing credit card swipe fees.
“If this settlement had been approved, the structure of fees that drive up the prices of everything consumers buy would have been cemented into place forever,” said NRF senior vice president and general counsel Mallory Duncan. “Now something can finally be done to bring these fees under control.”
“Retailers were skeptical of this settlement from the beginning,” Duncan added. “It would have done nothing to keep swipe fees from rising in the future. It was nobody’s idea of a good settlement.”
The court’s action left in place last year’s ruling by the 2nd U.S. Circuit Court of Appeals that struck down the settlement in a lawsuit brought by a small group of retailers and trade associations claiming to represent the retail industry. The decision leaves the 2005 lawsuit pending in U.S. District Court in New York, where retailers could go to trial, pursue a revised settlement or focus on other suits filed more recently.
The settlement was reached in 2012 even though NRF and others argued that it failed to reform the system under which Visa and Mastercard set swipe fees for credit cards issued by thousands of banks. Rather than lower the fees, the card companies proposed in the settlement that they be passed along to consumers as a surcharge. The deal had been the largest all-cash antitrust settlement in U.S. history, but its value shrank to about $5.7 billion after some 8,000 retailers opted out. Major retailers including Costco Wholesale Corp. and Walmart, along with Amazon.com Inc., opposed the settlement, and challenged it on appeal. Card purveyors American Express Co. and Discover Financial Services also objected to the deal.
Large chains said the surcharge proposal was the opposite of what they sought, while small retailers would have seen as little as a few hundred dollars each. Retailers who rejected the monetary settlement would have still been bound by other restrictions that the trial court would not let them opt out of, including a prohibition on future lawsuits over the fees.
NRF in 2014 asked the 2nd Circuit to overturn the settlement, saying it was opposed by a broad cross-section of the retail industry, from independent Main Street stores to national chains. The appeals court ruled in NRF’s favor last year, saying that merchants “were inadequately represented” in the case.
That ruling, however, was appealed to the Supreme Court by some of the original plaintiffs.
The Retail Industry Leaders Association (RILA), which along with other trade associations filed a brief this year opposing the effort to reinstate the settlement, also applauded the Supreme Court action.
The “badly flawed” settlement was crafted by banks and credit cards, said Deborah White, RILA’s senior executive vice president and general counsel, “and the 2nd Circuit recognized as much in its decision.
“Merchants and consumers continue to suffer from the anti-competitive practices of banks and card networks. We now have a fresh opportunity to curb these unfair practices.”
In the more recent decision, the Supreme Court rejected a ruling upholding a New York prohibition on surcharges for credit card use, saying a lower court should decide the matter on free speech grounds, not as a pricing case.
The NRF commended the Supreme Court for invoking the First Amendment. “Most retailers have no desire to surcharge their customers for using credit cards,” said Duncan. “That would be the opposite of our industry’s goal of bringing credit card swipe fees under control. But merchants do want to be able to show customers the cost of using a credit card without running afoul of the law.”
The ruling “is a clear stand in favor of the free speech protections of the First Amendment,” Duncan added. “The nation’s highest court has recognized that whether a merchant chooses to communicate credit card fees through a surcharge or through a cash discount is a matter of speech.”
“While merchants don’t want to surcharge, having the ability to do so would be an important negotiating tool in convincing the card industry to charge reasonable fees instead of continuing to drive up consumer prices through this skyrocketing hidden tax.”
The Supreme Court struck down an appellate court ruling upholding a New York state law banning credit card surcharges and sent the case back to the appeals court to be reconsidered. The justices said the appeals court incorrectly concluded that the surcharge ban regulated only conduct rather than speech.
The surcharge ban “is not like a typical price regulation, which simply regulates the amount a store can collect,” the Supreme Court said. “The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer. Instead, it regulates how sellers may communicate their prices. In regulating the communication of prices rather than prices themselves [it] regulates speech.”
The ruling came in a case challenging the New York law and similar measures in nine other states that prohibit merchants from imposing a surcharge when customers use a credit card. The laws, which were passed at the urging of the credit card industry, can be traps for merchants who give a cash discount, NRF said.
The lawsuit before the court argues that the laws violate merchants’ free speech rights under the First Amendment and are unconstitutionally vague under the Due Process Clause of the 14th Amendment.
Banks charge merchants a fee averaging about 2% of the transaction amount each time a credit card is used, and a fee of at least 21 cents when debit cards are used, said NRF. The fees total more than $50 billion a year and drive up costs for consumers because card industry rules effectively require them to be built into the price of merchandise, the association added.