Why Yesterday’s Supreme Court Decision Is Good News For Your Credit Union

June 26, 2018 at 9:05 am 2 comments

Image result for supreme courtHello folks. I know I said that I would be dedicating today’s blog to another regulation finalized at NCUA’s Board meeting last Thursday but the Supreme Court decided Ohio v. American Express Company yesterday and I think it’s worth explaining even though Visa and Mastercard were not involved in the decision and many of your members don’t have American Express.

In 2010 the Justice Department sued American Express, Visa and Mastercard. The department alleged, among other things, that the card networks were engaging in anti-competitive behavior by putting language in their merchant contracts prohibiting merchants from steering consumers to cheaper credit cards when making payments. As I’m sure many of you know, these provisions are intended to prevent a merchant from encouraging consumers from using cards that cost the merchant less money in transaction fees. Visa and Mastercard quickly settled, but American Express refused to cave. Perhaps this is because American Express relies on a smaller number of wealthier consumers and their merchant fees tend to be higher compared to other credit cards.

In most but not all anti-trust cases, a key issue is whether a company controls enough of the market to charge higher prices than it would be able to if it had to worry about competition. The merchants argued that the market in which they are competing is a market for credit card networks. In other words, courts do not have to consider the extent to which merchants benefit from increased consumer activity when analyzing anti-trust concerns. If they are right, then they pretty much have proven their case. Remember, all the major companies prohibited merchant steering.

Which brings us to yesterday’s decision. A majority of the Supreme Court made it clear that the credit card industry must be viewed as a single, integrated market in which both merchants and the card networks benefit. As the court explained, “Price increases on one side of the platform likewise do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services. See id., at 575, 594, 626. Thus, courts must include both sides of the platform—merchants and cardholders—when defining the credit-card market.”

Why is this so important? Because for years merchants have successfully but simplistically argued that any rise in interchange fees is all the evidence they need to demonstrate that they are being victimized by a credit card monopoly. Of course this is silly because it overlooks the very basic fact that they are receiving the benefit of consumer activity that they wouldn’t have if they didn’t choose to offer cards in the first place.

This is just one example of the many nuggets in the decision debunking merchant myths that have caused networks and their issuers so much money while providing little benefit to consumers, so it goes.

New Jersey’s Move Towards Originator Licensing Provides A Model for New York

I haven’t had much to say about mortgage lending in the last few weeks since Congress passed S.2155 and there are few times that I can honestly say that I would want to live in New Jersey but the Garden State deserves credit for moving quickly to implement a provision of the Federal law granting transitional licenses to originators who move into the state or who are transitioning from a bank or credit union to a mortgage banker subject to originator license requirements. As credit unions that operate mortgage CUSO’s know, this is a much needed change which will result in cheaper HR costs for mortgage bankers. I would love to see New York State take similar action but the Federal law doesn’t mandate compliance for eighteen (18) months. I’m not holding my breath. In contrast, New Jersey wants to be one of the first states in the nation to take advantage of this flexibility.



Entry filed under: Legal Watch, Regulatory. Tags: , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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