The Intercept’s David Dayen Intercepts the Wrong SCOTUS Message

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By Clive, a UK-based bank IT professional

It’s dispiriting to see those who purport themselves to be progressives ending up looking dumb by overly-simplistic knee-jerk reactions to complex subjects. In doing so, they undermine the cause for all of us.

One such is David Dayen writing at The Intercept on a Supreme Court ruling on card payment competition and the ability of merchants to steer customers into using a particular card scheme’s card. His introduction gives a preview of the remainder of his article:

Amid high-profile Supreme Court rulings like the lifeline given to the practice of gerrymandering, the endorsement of Trump’s Muslim travel ban, the gutting of public sector unions, and the defense of bakers who don’t want to serve gay people, the case of Ohio v. American Express may get overlooked.

But it could prove to be one of the most consequential rulings of the decade, serving as a broad immunity cloak for Silicon Valley giants — and perhaps others — in their quest to utterly dominate the global political economy.

In a 5-4 ruling along party lines on Monday, the court, featuring Justice Neil Gorsuch rather than Judge Merrick Garland, ruled that American Express did not violate antitrust laws when it wrote into its contracts with retailers that they could not offer discounts or enticements to get customers to use other forms of payment.

Dayen’s article was a textbook case of any stick to beat a dog.

Yes, the card networks are known historic bad actors and potentially parasitical. From a US perspective, credit card interchange fees are high — here, for example is Mastercards’s fee schedule which is complex (complexity being a feature not a bug) and compares poorly to the capped fee of 0.3% per transaction which the EU insists on for Mastercard and Visa when operating in an EU member state. And American Express’ (I’ll refer to them as AmEx from here) is even higher. AmEx fees are shrouded in merchant-specific contracts but interchange fees of up to 5% per transaction are normal.

But they aren’t a scam, they do deliver an identifiable and useful service. The cost of goods (or services) sold therefore has to be paid by someone, somewhere. Writers who style themselves as progressives, or consumer champions, or defenders of competition or whatever must be careful they don’t descend into thinking you can have something for nothing.

The Supreme Court justices obviously also wrestled with this topic, hence the heavily divided majority decision. The Swedish Competition authority wrote what is considered to be the definitive work in this sphere. Even a cursory skim through that report demonstrates how many moving parts there are in this debate. In the end, most jurisprudences have come down on the side of the card schemes, as the Swiss National Bank (SNB) deftly put it (emphasis mine):

Any restriction [on fees, acceptance and equal prominence requirements] should be based, not on the laws of normal markets, but taking into consideration the peculiarities of two-sided markets and the complex relationships in payment card markets.

Dayen lambasted the court for inventing special rules just for AmEx:

But [Justice] Thomas, writing for the court, ignored this evidence of anti-competitive conduct and determined that credit card markets were special because they catered to both retailers and cardholders. “Credit-card networks are best understood as supplying only one product — the transaction — that is jointly consumed by a cardholder and a merchant,” Thomas wrote. “Accordingly, the two-sided market for credit-card transactions should be analyzed as a whole.”

Thomas’s “two-sided market” claim is an invented rule, conjured specifically to aid American Express in its quest to extract maximum revenues from retailers. “I am not aware of any support for that view in antitrust law,” wrote Justice Stephen Breyer in a scathing dissent he read partially from the bench.

But courts, regulators and the industry itself has consistently identified, as did the SNB above, that card payments when viewed as a market is peculiar. There’s no point in trying to reduce it to the level of a girl scout selling her cookies at a stall, which is what Dayen wanted the Supreme Court to do.

Dayen also accused the Supreme Court of using industry-paid for studies:

The ruling relied heavily on papers from economists who were paid by the credit card industry.

But this is simply not true for European research which was undertaken by every major European regulatory authority. While academics and economists are certainly not infallible, when they study the question of card interchange fees and the effects of the various cards schemes’ rules, it is obvious even to a humble user of these products that to try to adopt a simplistic buyer-and-seller model is insufficient.

The US Supreme Court is merely following current internationally accepted theory on this. There are competing schools of thought, as the Swedish competition authority paper makes clear. So every time someone comes down on one side or another (and a court has to make a judgement; it can’t hedge its bets in a legal matter) you get wailing and gnashing of teeth from people who hold the opposite view.

And the nub of this case was that the complainants simply didn’t reach the required burden of proof to show AmEx’s scheme rules caused harm. If AmEx cardholders or merchants don’t like that scheme, they can use another one. There is competition, albeit limited. And if the card schemes, collectively, make their proposition sufficiently unattractive to their customers, be they cardholders or merchants, then there’s always cash (with the small proviso that for big ticket purchases you’d probably always want the benefit of the protection a card payment gives you; then you are demonstrably getting a benefit so you do have to be prepared to pay a premium for it — you’re then only arguing about the level of the fee, not the levying of it or how the card scheme provides that service, or the quality of the service — and these are different arguments).

The Supreme Court correctly in my view identified there was a cost balloon which could be squeezed by either the merchants, the cardholders, the card issuers or the card scheme (AmEx, here) but the existence of the balloon and the amount of air in it were appropriate or, if it was inappropriate then the claimants didn’t make out a sufficiently strong case to prove that.

The merchants wanted to try to squeeze the balloon at “their” end by subscribing to the AmEx scheme (which would bring them benefits because they’re able to accept AmEx cards — and AmEx is an interesting participant in this market because they have a target cardholder cohort in the more affluent/higher transaction value/greater average revenues per cardholder segment so merchants may well want to court AmEx cardholders for this reason alongside other card schemes), but then being able to dissuade AmEx cardholders from using a card in that scheme at their whims.

For example, they might be happy to accept an AmEx card on a high margin item, like a jewellery store selling a bespoke diamond ring where the design and workmanship resulted in an item whose retail price greatly exceeded the raw materials it contained but where you had a customer who simply wanted to by gold and pay only more-or-less the current spot market rate then the jeweller might say to use a Visa or Mastercard instead for that kind of commodity purchase.

The Supreme Court said no, that was merchants trying to have their cake and eat it too.

Dayen missed the subtleties of this case completely. So his solution — allow merchant dissuasion when they got a card presented they didn’t want to accept but all the while making a claim that they would accept those sorts of cards — is similarly muddle headed. Fee gouging could, if present in a market, to be dealt with by price controls such as fee caps (like the limited stick of wet celery lashing that Dodd Frank did in the US or the much more meaningful measures the Competition Commissioner took in beating up Visa, Mastercard and AmEx here in the EU). And monopoly suppliers should be either under state ownership or else regulated as natural monopolies.

For consumer finance, delving a little deeper, the entire ownership model could be reassessed. Instead of accepting whatever exploitation the card schemes see fit to mete out to us, a Post Office bank with its own non-cash payment scheme could be created. This could then be subject to whatever rules Congress sees fit to run it under, which is surely far better than allowing the Too Big to Fail banks and the card schemes to do their worst, then retroactively try to get the courts to intervene — which is exactly what happened in Ohio vs. AmEx.

This needs legislative action. If the barrier to that legislative action is lawmakers beholden to big business special pleading, then the correct course of action is to address the failures in the political process. It is not to grab hold of another completely different remedy, such as antitrust, then try to squeeze and contort that into the box you want to put potential miscreants in.

If there’s an oligopoly or duopoly then yes, under these circumstances, antitrust action is appropriate but there, as the Supreme Court confirmed, you have to meet the bar of showing consumer harm resulted from anticompetitive behaviour.

Dayen also showed he’d — unwittingly perhaps — drunk a tipple from the neoliberal Kool-Aid in his insistence that where there is a product or service, such as card payments, Uber, Facebook and so on, that people are somehow compelled to then use these and if these products or services are awful, then courts should be quick to step in and enforce better behaviour on the part of their suppliers. But this line of thinking buys straight into the fallacious idea that we’re helpless and hapless recipients of whatever capitalism deems fit to foist upon us.

Not so. We can lobby, boycott, sabotage and use what’s on the market in ways which the product or service vendors never anticipated or can’t control. Merchants can stop accepting AmEx. Don’t use Uber. Refuse to visit a website that wants you to sign in with Facebook. Throw your Alexa in the trash if it tries to sell you something, or just throw it in the trash anyway. There’s something faintly loathsome about the suggestion that commercial concerns can put something in front of you and, however bad it turns out to be, you’re merely the passive recipient of whatever terms and conditions are attached to it and have no recourse short of litigation.

In summary, the claimants in Ohio vs. AmEx had a triable case but it was always a weak one. No doubt it seemed less onerous than attempting to get Congress to act further on card fees.

That still didn’t make it the right thing to do. The Supreme Court considered the law, AmEx’s conduct and the facts of the case which was made out to it. It then upheld the law of the land which is what it is there to do. If you don’t like the law or you think that regulation of a particular industry isn’t sufficiently strong, you should vote for politicians who will change that. If you complain that politicians who will do that don’t exist, consider how to bring about a few more like Alexandria Ocasio-Cortez. Please don’t, as Dayen did, succumb to the notion that tech, so-called innovation and the financialisaton of everything is inescapable.

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  1. Synoia

    There are many merchants (Service Establishment is Amex’s jargon) who do not accept Amex, because of it high fees.

    Where I live the Vietnamese Merchants don’t accept credit cards. Cash or nothing.

    Cash imposed a cost per transaction, which is higher than Credit Cards fees. It has to be manged, accounted for and deposited in the Bank, with the ever present risks of loss, counterfeit or stolen.

    1. Clive

      I was at the limits of tolerable word count for this post so I didn’t want to get too sidetracked with this but it is useful as an adjunct.

      AmEx is actually an important detail in this story. Their fees and charging model only works for some merchants and then probably only for certain product lines even then. AmEx targets big ticket purchases which, stating the obvious, you’d only get from merchants with high value goods. They are not really interested in people buying noodles.

      On the cardholder side, AmEx similarly wants customers who generate those sorts of transactions. AmEx specialises in high credit limits which does need specialist procedures to assess borrower behaviour (jumbo loans, especially for unsecured credit, is not particularly amenable to rule based monitoring, although it can be used up to a point once you’ve got a sufficiently mature knowledge base, which AmEx has). For example, while my Mastercard and Visa scheme accounts have crept up to £10,000 or even £15,000 limits, they don’t go above this level. Those card schemes (and the card issuers) just don’t know how to handle cardholders who are spending £50k a month on their card.

      Only AmEx has sufficiently capable transaction and merchant monitoring to allow cards with $100,000 or even $250,000 limits on them to be issued and those cards used in merchants selling goods stickerd in the $25-50,000 range (or higher).

      While AmEx doesn’t mind more mainstream cardholders and merchants, this is just to get a few economies of scale.

      AmEx scheme members (merchants, here) asked the courts to allow them to have all the upside of participating in the AmEx scheme (well-heeled customers, the ability to write high value transactions without too frequent referral incidents) but none of the downside (loss of margin on small value and less profitable lines). To have a court allow a party who had willingly entered into a contract with perfectly clear terms to then try to wriggle out of the bits they didn’t like would have been a far more damaging precedent than to prevent a supplier of services to impose conditions on the subscribers which, while not great, were still part of a quid pro quo.

      And I really could not support Dayen’s notion that if this now allows Silicon Valley grotbags to sell us products or services with similarly unpleasant product owner or service user obligations that we somehow have to raise those to the level of an essential utility (i.e. we allow ourselves to become obligated to use them) and then beat back the bad terms and conditions of use in the courts. We should simply refuse to play along until they stop trying to be so exploitative. Even then, I think I’ll be able to live without Uber, Alexa and Facebook (etc.) for the rest of my life, quite happily. I don’t need the excuse that their conditions of use agreements are crappy.

      1. jsn

        Thank you for this clarification, this makes explicit the game retailers were trying to legalize.

        1. Clive Post author

          Yes, so-called shadow profiles are still an invasion of privacy nonetheless. Unfortunately that wasn’t one of the grounds of this case, which were commercial law and antitrust legislation. Which is why I was so keen to be able to post on this. The correct approach to potentially unlawful conduct in Silicon Valley is to bring well-founded fact-specific cases against them (such as invasion of privacy suits to use your example). It isn’t to grasp at antitrust straws just because you can find a lawyer who’ll take the case. That’s symptomatic of the “when all you have is a hammer, every problem looks like a nail” syndrome.

          And if, so I said in the piece, current laws are not sufficiently robust to tackle a problem, the solution is new, or better, laws. Or direct state intervention and/or ownership — if appropriate. Resorting to just commercial or antitrust based litigation is a fundamentally neoliberal response to a societal problem.

          I am not, though, saying that for some situations imposing a cost on a party or group isn’t a good solution — such as gun owners being required to carry third party loss insurance. But different participants trying to squish the AmEx card scheme cost balloon is not a valid solution to general abuses in the card payments market.

      2. Larry

        I have an Amex for corporate expenses. The majority of the expense are for travel and hotels, so higher ticket items, but I’ve been surprised that a majority of merchants now accept Amex. I found this to not be the case in the 90s. I suppose Amex has a complex fee schedule as well that dings noodle merchants less severely than say Lufthansa.

      3. sgt_doom

        For the record: Top three shareholders of American Express —

        Vanguard, State Street and BlockRock

        1. sgt_doom

          Sorry, my mistake on that:

          Top six shareholders of American Express:

          Berkshire Hathaway
          State Street
          Dodge & Cox

          (Top three shareholders of Berkshire Hathaway: Vanguard , BlackRock, State Street //// Top three shareholders of Wellington: Vanguard, Fidelity, State Street)

          1. Yves Smith

            Aside from Berkshire Hathaway, they are all mutual funds or institutional index fund managers. The stocks are held in street name on behalf of the particular funds they are in. American Express is in the Dow and the S&P 500.

            Your point?

  2. The Rev Kev

    I’m wondering if this story would have even been published, much less written, if the US Supreme Court wasn’t suddenly in the news again. As far as the merchants are concerned, they must have known what they were signing up for. A case of caveat emptor perhaps? I call it the Super Chicken Principle myself-

    1. Clive Post author

      Yes. Maybe The Intercept ran it because they thought it was a good story. But the Supreme Court bashing was misplaced. This was a finely balanced case. Siding with the merchants would have been riddled with unintended consequences.

  3. Tired lawyer

    Um, what? With all due respect, Clive, what exactly does the UK and IT have to do with antitrust law in the United States?

    Yes, the EU has done this differently. But the issue is not the fee, it is the restriction on price competition — and price disclosure — on the merchant side.

    Our law isn’t like EU law or even UK law before the overlay of EU competition. As an actual US competition lawyer, I hope you’ll understand if I take exception to your analysis. The Supreme Court decision is rather a disaster for a number of reasons that have to do with the development of OUR law. And yes it’s complicated and I’m not going to write a tome about it here. But for starters, in a footnote this moronic opinion seems to have shifted the proof required for a whole class of cases. It is a very bad opinion, and a rather terrible outcome for US markets. What Dayen is saying I see broadly echoed in commentary by US scholars in this law (except for a particular almost religious wing of the law).

    Yes, the EU has decided the issue and the sky has hardly fallen there. Competition law in the EU is very different. We already had serious problems with the law not dealing with non-price market impacts that are important and the fetishism of “output restrictions” in AmEx isn’t going to help that. Nor have I ever seen a more confused misunderstanding of externalities and exogenous impacts in a legal opinion of any kind.

    You will now see everything from retailers to hospitals claiming to be a double sided platform for years in the US and this will cause huge uncertainty and serious problems for at least a decade. it doesn’t sound like you spend a lot of time in court. From the point of view of the development of the law, which allegedly is what the opinion is about if the Supreme Court takes up the case, this is indeed a disaster in my opinion. The dissent couldn’t be more correct.

    1. Clive Post author

      All these arguments were made in the development of the case. They all fell away on the same legal argument: the merchants and AmEx willingly entered into a contractual arrangement which the merchants then wanted to break or at least cherry-pick. AmEx held them to the terms they’d signed up to. The merchants wanted a court to intervene in a commercial arrangement and ultimately the courts refused to do so. The merchants can now either leave the AmEx scheme or play by its rules. This is nothing new for the US legal system. US courts have been slow to unpick commercial relationships for at least a hundred years and there was nothing in the case which was going to change that.

      And I’m sorry but I’m not buying your depiction of the US Supreme Court now siding with some kind of right wing libertarian sensibilities as a result of this judgment. Courts everywhere stuggle endlessly with where to draw the line on when a contract becomes unfair, when contract restrictions overstepped the line and became anti-competitive or what weight, if any, to assign to the different power relationships present between parties entering into a contract. The generally very liberal U.K. Supreme Court ruminates over this constantly, see here

      And I’m not keen either on your implicit parochiality. Law is increasingly international by necessity because the goods or services I buy in the EU may be run from a server in California, my U.K. bank issued AmEx card can be used in a New York restaurant (and these are simple examples, cross border jurisdictional overlaps are important so you can’t pretend that, say, EU Competition Commissioner rulings don’t mean a jot in the US — see the recent machinations re. GDPR).

      1. Ape

        Doesn’t any such mechanism require properly functioning collective bargaining mechanisms such as business alliances and functioning parliamentary bodies?

        Isn’t that what has broken down in the US (ergo the over reliance on judicial solutions?)

        1. Yves Smith

          You are missing the importance of Clive’s comment re parochiality.

          I’ll give a practical example.

          One of the features of the bank card networks (Visa and Mastercard) is because they operate across so many countries, with jurisdictional issues (what is the governing law if someone who signs a card agreement in the UK has a dispute with a merchant in Melbourne or Chicago when traveling?) that from the consumer perspective in a dispute with a merchant, with a few exceptions of idiosyncratic narrow rules in a few countries that they ignore, the card networks apply the highest, not lowest, standard of consumer protection across their jurisdictions. It would be way too hard and costly from an IT and customer management perspective to do it any other way, given the average not high value of the transactions they process.

          You are incredibly well protected as a consumer if you make a credit card purchase using a Visa or Mastercard. I do not want to do into details but after never having wanted or needed to dispute a charge in decades, I’ve wound up needing to dispute 3 charges in the last 18 months, one due to vendor bankruptcy, two due to defective/fraudulent service being provided. The first disputed amount was over $1400, the second two, both over $5000. I got all my money back in all cases. Oh, and the big ticket services were medical, meaning there is a way to get $ back from doctors who screw you up or misrepresent their services that is less brain damage and vastly lower cost than malpractice (although you won’t get $ for harm, merely the money you gave to them).

          This is the polar opposite effect of what you’d expect given the Godzilla v. Mothra of concentrated card networks v. increasingly concentrated merchants (Amazon, WalMart, airlines, telecoms, etc), that the consumer, as the least powerful party, would inevitably get the short end of the stick.

          Now you can be very unhappy about how banks handle credit card interest charges, and the fact that the the Mastercard and Visa card issuers have business models that depend on having customers wind up paying interest charges, either occasionally or all the time. But those interest charges are levied by the banks, not the card networks….so the pricey consumer loan-via-credit card is subject to national jurisdiction via banking regs, but those banks are still plenty fragmented (4800 commercial bank, according to FRED)

          1. DJG

            Clive and Yves Smith: Thanks for the post and this discussion. I came to this case with mixed feelings, but I also am required to use Amex for work, because the company uses Concur (now owned by the Germans). This is a rather astounding network designed to monitor employee business-related transactions.

            At the personal level, I have ended up using Amex, including for some “rolling” transactions like my car-share service (Zipcar) and certain renewable memberships in organizations.

            As you point out, Amex is good on security–better than Visa, I’d venture. And conversely Amex provides many services and doesn’t rely on outrageous interest rates. The yearly “membership” is a set fee. Visa pretty much kicked me out because I pay off my charges every month and wasn’t using Visa often enough. Amex encourages paying off the bill each month and picks up the revenue from fees and “membership.” Also, I have remained at the Green Card level for years and years, giving up the Gold Card that I foolishly held when I was in my thirties. Not so ironically, Amex didn’t like the self-downgrade to virtual plebeian status.

            So it is a slightly different business model.

            When I had a Visa, I sometimes asked merchants to make the choice. They preferred Visa to Amex largely due to the fees. So Amex has no enforcement mechanism anyway.

            Now I use only Amex, which as a commenter above notes, is taken at places that once wouldn’t have done so, like bakeries and grocery stores.

          2. Ape

            But still, to control costs etc, you need collective bargaining at an equivalent scale – and I don’t see that functioning in the US.

            The solution is unlikely to be judicial antitrust action but political regulation as in the eu 0.3 charge limit. It may be a natural monopoly and in that case judicial responses are square peg round hole situations. Natural monopolies require political responses.

            1. Yves Smith

              Yes, that’s the real issue here, and we probably should have made that much more prominent. There is a strong case for forcing a reduction of all “interchange” fees, not just this narrow Amex “don’t tell the customers we ding merchants more than other cards” issue. And they do that in Europe, and through regulation.

      2. Tired lawyer

        This case was not brought by the merchants. It was brought by the government. They were arguing that the contract causes anticompetitive effects, which is what antitrust law is about.

        Companies have complained for a very long time that they face different laws in different countries. Commerce may well not recognize borders. It is far from parochial to note that the law doesn’t currently work that way.

        Again, this isn’t about power relationships. The Supreme Court agreed this is a direct evidence case, meaning market power does not need to be demonstrated (well, didn’t before this opinion). It is about market impacts and whether when you say that “a line of commerce” is harmed, what do we mean by “a.”

        1. Clive Post author

          The government took up the cudgel on behalf of merchants so while it wasn’t their names on the docket, the government acted as their litigation friend.

          And that was probably fatal to their case. The courts could not work out who, exactly, had been harmed and if so to what extent.

          Also, law is constantly evolving to deal with new situations. That’s why you look through the case law —- and cases like this one —- to try to determine how the law is being interpreted today. Not how it was 10 or a hundred years ago. To criticise the judiciary by advancing the law to keep it relevant is a big stretch.

          And I never said this case was about different power relationships in parties to a contract, I said that was a factor which is potentially valid to consider.

          But yes, this case was definitely all about market impacts. The Supreme Court decided that AmEx’s rules didn’t have any (on the point which was put before them about pricing transparency). It was a weak argument that cardholders were somehow disadvantaged by the merchants not being able to tell them that AmEx was more expensive for them in terms of fees — more information doesn’t equate to better decisions and why do cardholders have to be dragged into a decision anyway? And dissolving equal prominence would have been just as market distorting. None of the voices criticising this judgement seem to have thought through the consequences of if the ruling had gone the other way.

          No-one, least of all me, like to be on the losing end of an argument. But to try to claim this judgement is a miscarriage of justice or perverse doesn’t wash.

    2. Yves Smith

      Oh, come on. Even Adam Levitin, who is very unhappy with this ruling, does not see it as applying to anything more than card network antitrust suits.

      I need to read the decision but it does not sound as if either side arguing this case dealt crisply with the fundamental differences between the Amex v. Mastercard/Visa business models. Amex is internally integrated end to end. It “owns” the merchant side of the transaction (which they call “service establishment”) and the customer side. It provides their statements provides the customer/merchant support services, collects their monies, etc. That means it also gets any interest the consumer pays.

      By contrast, with Visa and Mastercard, you have one bank handling the merchant, another bank handling the customer, and the networks sit between them, charging for processing transactions (and other stuff, but mainly processing transactions). So you have at least three parties to a Visa/MC transaction (bank for issuer, network, bank for consumer), while with Amex, only one.

      (Having said that, Amex does enter into franchise arrangements in some countries where banks or even in Croatia, a travel company, is the card issuer. But this is mainly in countries too small for Amex to deem it worthwhile to set up its high-overhead operations, like South Africa, Israel, and Costa Rica. But this case is about the US….)

      That means if you are Amex, your argument is that what “the network” or however you want to label the relevant frame of economic analysis, amounts to is YOUR network, customer-handling through service-establishment handling, while the Visa-MC networks are all bank to bank. Visa and Mastercard do not touch merchants or customers save on an exception basis (like customers escalating to them when their banks are not doing what they are require to do under Visa/MC rules, and even then, it is very hard to figure out to whom to try to beef, by design).

      It appears that the Supreme Court accepted the Amex notion of the boundaries of a card network, and it isn’t clear to what degree the various Justices understood and made explicit that you have apples v. oranges issues to think through when looking at Amex v. the bank card networks (Thomas clearly didn’t get that).

      1. Matt Stoller

        There’s a reason the tech platforms filed an amicus brief on this case. There are arguments that the way Thomas laid down his decision some platforms are not affected – Google and Facebook – but Amazon and Uber are certainly now immunized. These are arguments, though, and quite porous. My guess is the courts could immunize everything now.

        The case was about anti-steering provisions being applied to merchants. The analogy to big tech is obvious. For example, Google manipulating the traffic or ad revenue of, say, Naked Capitalism, in an anti-competitive manner, would be captured here. In order to bring a case, you now not only have to prove they are doing this to you, but you also have to prove that this is impacting *your readers*, aka ‘consumers’. That makes the bar impossibly high.

        Clive’s interpretation is simply based on ignorance of the law. “If there’s an oligopoly or duopoly then yes, under these circumstances, antitrust action is appropriate but there, as the Supreme Court confirmed, you have to meet the bar of showing consumer harm resulted from anticompetitive behaviour. ” This is 100% right-wing bullshit. If I steal from a store, consumers aren’t harmed, but it’s still theft. Antitrust law has historically worked the same way. The whole point of this case is to reorient the law to allow theft by big players who call themselves multi-sided networks. And no, European scholars like Jean Tirole did not, as Clive claims, underlie this case. This was Evans Schmalensee, who is paid by the credit card industry. Honestly this piece should be retracted. It is that bad.

        1. Clive Post author

          The problem I have is in the categorisation that someone, AmEx in the Ohio case, is impacting someone negatively. But AmEx didn’t harm anyone according to the evidence Ohio presented to the courts. They charged the merchant a fee for a service. Now, you can make a claim about the value for money of that fee for the service provided. But in no way is that tantamount to harm.

          Ohio’s argument is that by not disclosing the fee, specifically by allowing the merchant to display the fee or use the fee as a bargaining chip with the cardholder, this was somehow in violation of antitrust laws. Or, alternatively, that the fee was extracted through anticompetitive behaviour. But the problem I have with this reasoning is that by conscripting cardholders into a dispute between the merchants and AmEx, you’re trying to drag the cardholders into saying they lost out in some way. But the cardholders didn’t lose anything or if they did, Ohio couldn’t prove how much and who took it. They simply failed to discharge the burden of proof. The fault is therefore theirs. If they had a better case, they should have made that out or hired better lawyers. If that was the best they could do, it wasn’t good enough.

          If I’m wrong and it was, rather, the merchant who is supposed to have lost out, that’s even weaker an argument. They undeniably got a service from AmEx. The merchant knows the fee schedule AmEx imposes on them. They also have a choice in whether to participate in that scheme. In the presence of at least two other widely available schemes, which participation in AmEx’s scheme doesn’t preclude or render any disadvantage to the merchant by doing so, it’s very hard to see where antitrust litigation could ever have succeeded.

          What is especially problematic is where a lot of commentators have sought to link this case to tech bad behaviour and try to paint it as some sort of scamming enabling device. But in order to make your hypothetical case out, you relied on Google defrauding advertising carriers or perpetuating some other theft. Or intimating that Google had caused some sort of harm to someone. A fraud or theft claim should be tried as such. You would not attempt to get a remedy from Google for their theft from you using antitrust laws. If you suspected Google of deliberately tampering with the data upon which they base their contractually stipulated fee and payment schedules (fraud, in other words) you would present your skeleton argument to a judge and ask for disclosure to — so you’d hope — gain further and better particulars about what Google had been up to.

          You would not, or if you did I’d be intrigued to know why you did, file an antitrust action. Put it this way, if I developed a wallet stealing device which allowed one to surreptitiously retrieve your wallet from your pocket without you realising, which I then sold to a small handful of fellow criminals at an exorbitant price with me getting a cut of the ill gotten gains written into a contract — and you then found out about it having been pickpocketed — you would not, I don’t think, go after me under antitrust. You’d want me charged with a nice, simple case of theft.

          Conversely, if you wanted to go after Google on antitrust, you’d still have to show who was harmed and how they’d been harmed by Google. Ohio vs. American Express did nothing to change this fundamental principle of antitrust. You have to show anti competitive actions have restricted the market and you have to provide evidence of how that restriction affected consumers.

          While I’d be the first to acknowledge that progressives have deftly and successfully used antitrust to slay some very damaging big business dragons in the past, and antitrust is a potentially useful approach, you still have to satisfy the legal threshold. In the Ohio case, the complainants presented very skimpy evidence from conflicted (other card schemes) witness who were frankly an embarrassment on the stand.

          From the court transcript pg. 4 / 5):

          JUSTICE GORSUCH: We’re not here to
          12 protect competitors, right, Mr. Murphy?
          13 MR. MURPHY: Correct.
          14 JUSTICE GORSUCH: Or — or necessarily
          15 even merchants. The antitrust laws are aimed
          16 at protecting consumers; you’d agree with that?
          17 MR. MURPHY: Correct, although in
          18 this -­
          19 JUSTICE GORSUCH: Okay. So, given
          20 that, there’s no evidence of restricted output
          21 in this case, correct?
          22 MR. MURPHY: I — I would agree that
          23 it’s — there’s — it’s ambiguous. There’s no
          24 one way or the other about whether — whether
          25 it has restricted output.
          JUSTICE GORSUCH: And that’s normally
          2 what the antitrust laws care about, is
          3 deadweight loss. That’s the primary concern of
          4 antitrust activity, wouldn’t you agree?
          5 MR. MURPHY: Correct, although I think
          6 the -­
          7 JUSTICE GORSUCH: Okay. All right.
          8 So you’re left with this price question.

          [the testimony went on in this manner for a while longer but the court effectively threw out the notion that there was restrictions on competition from that point on]

          So Supreme Court examined the claims of restricted output and didn’t find any evidence of this.

          And just to preempt any idea that relying on a negative (that a restriction on output wasn’t found but that doesn’t necessarily prove a functioning competitive market exists) on pg. 27 Gorsuch specifically said there was competition and addressed the question of why AmEx’s fees to merchants were higher and why this was not, unfortunately, automatically evidence of anti-competitive behaviour by AmEx:

          JUSTICE GORSUCH: And they’re free to
          4 do that, right? I mean, American Express’s
          5 agreements don’t affect MasterCard or Visa’s
          6 opportunity to cut their fees, their own fees,
          7 or to advertise that American Express’s are
          8 higher. There is room for all of that kind of
          9 competition here.
          10 It’s just the difference between
          11 Cadillacs and Kias. People can choose. Do
          12 they want a high cost, high reward, a low-cost,
          13 cheaper alternative? And the two sides can
          14 compete with one another.

          Please don’t get me wrong, the card payment industry is a cesspool. There are numerous problems within it from industry participants. And certainly I’ve lost legal proceedings both personally and professionally. You’re always left with a bitter taste in the mouth. Especially when you read the judgement and you can then try to convince yourself that with a slightly different argument or a smidge better evidence, you’d have carried the majority.

          But Ohio fought the case on antitrust and that is what they asked the courts to make a judgment on. As a piece of antitrust action, it had a flaw in the foundation which, eventually, the Supreme Court used to crumble the whole edifice. Namely, Ohio had to show consumers had been treated in some way detrimentally. The facts didn’t support this. And the law didn’t allow enough leeway for the complainants to suggest they could or might potentially be harmed somehow.

        2. vlade

          Wrong metaphor.

          It would be more as if NC was able to use more ad providers, but put above them a very visible banner “for small ticket items, please click on the left. For large ticket, right”. One of the ad providers wouldn’t like that, and asked NC to conform to the terms of contract, so the state would sue them for anticompetitive behaviour.

  4. lyman alpha blob

    Not a lawyer so I won’t comment on the legal merits of the argument, but things like this –

    …the court, featuring Justice Neil Gorsuch rather than Judge Merrick Garland…

    – make me very skeptical that the argument is made in good faith. If the Democrat party is still lamenting the fact that Merrick Garland, a REPUBLICAN nominated by Obama, is not on the court, then they are really too far gone to bother with.

    What reason at all is there to believe that the Republican pro-business Merrick Garland would have voted any differently than Gorsuch? The man sin’t exactly the second coming of Thurgood Marshall, which is what the country actually needs.

    1. DJG

      lyman alpha blob: Yep, I noticed that, too. The Democratic leadership is simmering in its own nostalgia. And that is no way to win elections. But it animates the idea of, say, Joe Biden running for president. Maybe Debbie Wasserman Schultz can revive King Tutankhamen. He’s a popular guy, and I bet he is Red to Blue.

      At least Dayen didn’t remark about the famous “e-mails about yoga.”

      This constant dredging up of past injuries and insults is something that most of us wouldn’t stand for in personal relationships. In the public world, it amounts to sniveling. Sniveling does not win elections.

      But maybe the Democrats would prefer to snivel. They certainly have no plan to win the elections this fall.

  5. juliania

    I can’t argue the ins and outs of credit card operations, since I haven’t had much experience with them. However, I was startled to hear Clive making rather biting remarks about a writer for whom I have great respect, David Dayen. I’m not greatly fond of the Intercept, but Mr. Dayen has integrity, with a body of work that reaches back to past Firedoglake involvement in my experience. If he is in error in this case, I am very sorry to hear of that, but I think that the disagreement could have been presented more politely.

    1. Yves Smith

      I am sorry, you are sorely mistaken. Dayen greatly abused a large number of people who were on the front lines of the foreclosure fight with his book, which was written in a Michael Lewis style with the apparent hope of selling a screenplay. It is fundamentally misleading both in terms of the lessons one could have learned from it in terms of activism, as well as denigrating the considerable investment of time as well as real personal sacrifices made by some parties, like two critically important foreclosure lawyers who were far more important to the impact than the three Florida characters he highlights, and both wound up having their wives divorce them due to the strain on their marriages of making no money. One also lost his house. And they didn’t have to take up this fight and had successful law practices before they did….which they had to rebuild.

      And I am not being polite because he screwed my friends, my allies, and me: Bubba Grimsley, Nick Wooten, Tom Adams, Michael Olenick, and Matt Stoller, among others. I do not take betrayal or dishonestly lightly.

      See here for some more detail:

      And this post for an example of Dayen getting another story wrong:

      1. ChiGal in Carolina

        Didn’t know all that detail, but I do recall thinking he had become unreliable when I read another article of his in the Intercept (which I DO like) where he seemed to have got hold of the wrong end of the stick (different topic and I don’t remember now).

        1. RalphR

          That post has nothing to do with foreclosures or Dayen’s book…so your link doesn’t prove your claim.

          1. FluffytheObeseCat

            Stoller linked to coverage of this SCOTUS decision in his 06/27 Buzzfeed article, and he wrote a sentence or two about the matter. This commenter’s link directly pertains to the topic of Clive’s post.

            1. RalphR

              Yves was discussing how Dayen behaved regarding his book.

              The article linked to had zero to do with that. It does not disprove anything Yves said regarding Dayen and how he apparently distorted what actually happened.

              That means the comment is not a refutation of any kind. It’s an effort to distract from the issue at hand, as yours is.

            2. Yves Smith

              You and H are engaging in thread jacking, and the reason that’s against our written site Policies is that it’s an invalid form of argumentation. It’s trying to score a win by bringing up unrelated issues.

              Dayen and Stoller have clear points of view on this issue that are aligned. Stoller works all the time with people where he has disagreements on other issues, such as libertarians on Audit the Fed. And Stoller, unlike me, did not enlist people like lawyer/securitization expert Tom Adams to divert time and effort from their careers to work on foreclosure fraud and make a huge difference to the effort (Tom spent enormous amount of time educating people on Stoller’s listserv, including Dayen, regularly keeping them from going off half backed and focusing them on core issues and how to find and interpret information and make better legal arguments) then to have their essential role completely obliterated from what has mistakenly come to be regarded as an accurate and definitive treatment of that fight. In other words, Stoller has to be more forgiving because there aren’t that many progressive writers for him to collaborate with, and the allies he brought in were housing and left-leaning activists who were happy to take up the cause and didn’t incur personal/institutional costs (they if anything reaped benefits). So his relationship to l’affaire Dayen is different than mine.

              Finally, the left if they are going to make fights based on information and logic, as opposed to the “going to the streets” raw show of power, they need to have the goods. As Clive explains, this wasn’t a strong case and the plaintiffs didn’t prove harm on the merchant side, when they were the moving force behind this case. That opened the door for the Supremes framing the scope of the case as including both sides of the transaction. Had the plaintiffs established harm to the merchant, would the Supremes looked at the consumer side? Not clear to me, particularly given that this was a 5-4 decision.

        2. Michael Olenick

          Stoller was wronged – lots of us were – but can still agree w/ David on many issues. I don’t trust any facts David reports but still agree with many of his opinions. David’s a hack of a “reporter” — lazy, dishonest, and incompetent (and I’m happy to prove that). But that doesn’t mean I’m going to knee-jerk disagree with his every opinion. Nor does it mean that by agreeing with one I endorse anything else. It should mean we don’t trust a word he reports without independent verification though.

        3. FluffytheObeseCat

          The linked article is very well written. Stoller always writes well, but this one is particularly readable. The continuous, covert aggregation of economic and social power by internet and telecom giants faces too little coverage in the U.S. Stoller always fights back with clarity and verve.

        1. Yves Smith

          You mean the Nation with the cruise?

          Or The Nation that praised Eric Schnneiderman as a progressive hero, even after his mortgage settlement sellout?

          The problem with The Nation, as someone who has known Katrina vanden Heuvel for decades and has regularly in The Nation, said it builds up its progressive bona fides for three years to sell them out in Presidential elections.

      2. Michael Olenick

        I don’t know David Dayen well but his personal interactions with me, combined with proof positive, raise big questions about how he conducts himself. New evidence recently came to light proving that David thought it was clever that one of the key characters in his book was lying. He made zero effort to double check the most basic facts in his book. David didn’t even know, until after the book was published, that one of his three “foreclosure fighters” was using a pseudonym. Knowing but not disclosing that would demonstrate a lack of integrity (though he could have kept the name private). Not knowing it, for one of three central characters in an entire book, shows a lack of competence. Not admitting it matters shows a lack of integrity.

        I’ll write my own book, or maybe a serialized set of posts, about those events based on my plethora of emails with both the people in the book, many others (including Yves), news articles, and court records. The real story of what happened is a lot more interesting than David’s. We called it Project Mill Dust. Apparently poorly run mills form a dust that if ignited by the smallest spark results in an explosion that can be seen and heard far and wide. Many events in the book — for example, dressing up in a gorilla costume to disrupt NACBA loan modification events, agitating already stressed out homeowners — were self-aggrandizing gestures that did not help.

        That book isn’t David’s only willful misrepresentation. The post Yves linked to proved, beyond any shadow of a doubt, David botched a story by grossly misrepresenting a “whistleblower” vulture buyer as some type of hero. And just like he gaslighted on the story related to his book he also refused to budge when confronted with overwhelming proof that he blew it.

        David’s a good storyteller. Good storytelling is important. But, when reporting purported non-fiction, accuracy matters. On that account David Dayen is a hack.

      3. sgt_doom

        Was Dayen correct or incorrect when his book mentioned the invalid PSAs?

        Was Dayen correct or incorrect when his explained how multiple laws had been violated by both the way the securitizations were performed and those invalidated PSAs?

        1. Yves Smith

          Your prosecutorial tone is out of line, particularly since it is a failed attempt to dispute my assessment of Dayen’s work. You seem to forget I was involved in this fight for over two years on a daily basis and know all the main players personally. Had you bothered reading the links above, which apparently you didn’t, I explained in detail how the framing of Dayen’s book was fundamentally false (no, three activists in Florida did not fight the mortgage industrial complex to a standstill, there were tons more players, and his three heroes were not central nor did they have anything to do with developing the legal arguments that were the most important weapon in this fight).

          Trying a “gotcha” with some elements of Dayen’s book does nothing to disprove what I wrote.

          Moreover, if what you wrote is an accurate presentation of the book (recall I have not read it, I am relying on his own blurb as to what the thesis is as well as Lynn Syzmoniak’s court testimony disputing its accuracy and the many errors I saw based on a quick flip through), yes, he was incorrect.

          There was absolutely nothing wrong with the pooling & servicing agreements. Nada.

          They had been first created in 1986 and had no problems until sometime in the early to mid 2000s. They had been carefully crafted to satisfy numerous considerations: the UCC, tax law, the vagaries of real estate laws in many states, securities law, bankruptcy law, and trust law.

          The problem was that at some point (and no one knows when the deviations started, how quickly they become common and how extensive they were in 2006 and 2007, the peak of the subprime boom), the parties creating the mortgage bonds stopped signing the borrower promissory notes in wet ink to show the transfers between legal entities as contemplated in the PSA with the final transfer to the trust. They could have changed the contracts to show their new practice but they didn’t. Tom Adams thinks it’s because investors wouldn’t like it and the originators didn’t want the cost and delay of arguing with them.

          It is also not uncommon for parties to breach a contract. When they are caught out or decide they need to clean up their act, the parties work out a waiver or amendment and if it’s a meaningful change (this would have been) the party who needs the waiver typically has to pay something (see when JPM bought Bear and realized the contract it had signed contained a huge error, JPM had to pay more to get the terms changed).

          The problem here, however, was that even if someone had wanted to clean up the contracts, our guess is that 80% elected to use New York law as governing law for the trust. New York trust law is rigid and unforgiving. For reasons I discussed in gory detail back in the day, there isn’t any way to fix the failure to transfer assets (mortgages) into a New York trust as specified in its governing agreement after the fact.

          Now you could argue that the failure to transfer the assets into the trusts on time meant they violated tax law, since that provision was created to satisfy REMIC (Real Estate Mortgage Investment Conduit) created in the 1986 tax law.

          You be wrong.

          Tax is its own weird arcane world. I spoke at length to two top tax experts (one is a prof who worked on the original REMIC language) and their view was the IRS would not be bothered by the violations of the PSA. The IRS doesn’t care about New York or Delaware trust law. It cares about economic substance. Mortgages were transferred via Excel spreadsheets and funds were transferred through all the right banks on time. All the grownups were at the closing. Everyone was happy. That’s good enough for the IRS.

          Georgetown law professor Adam Levitin argued that failure to get any mortgages into a New York trust by the closing date of a PSA would amount to contract formation failure, as in trust would not exist. The remedy for contact formation failure is recission, meaning the deal gets unwound. We had strong circumstantial evidence that this had happened in some (perhaps many) cases, for instance, when Linda DeMartini of Countrywide said Countrywide had all the mortgage notes for its securitizations in Kemp v. Countrywide. That’s not where they should have been. They should have been with the custodian who was acting as trustee, which IIRC was Bank of New York. But then Countrywide denied her testimony.

          The big violations of law occurred in the foreclosure process, first as a result of the servicers having God-awful records as well as gimmicks designed to make sure that if someone missed one payment, they went into a death spiral (we also wrote about that at great length back in the day). That has nothing to do with the PSAs, in fact, we discussed at length how many of the bad servicing practices, including how some servicers credited borrower payments and abused suspense accounts, were violations of the PSA.

          The second big source of abuses were the efforts to make it look like the party who showed up in court had the right to foreclose, such as document forgeries and fabrications. Here the Florida crew made a big mistake by focusing on what came to be called “robosigning”. That made it sound to laypeople like the problem was merely one of the mass production of legal documents for foreclosure, and had the document prep been done with more care and at greater cost, it would be fine. In other words, for people not close to the action, it looked like a mere technical paperwork issue.

          I could go on.

          One of the greatest wrongs, and also what I assume is the greatest source of error (aside from the utterly misleading backbone of the book, making three people central who were at most an important, and demonstrably not the most important, branch in a sprawling process) was him not conferring with securitization expert Tom Adams. Tom was the expert that informed this entire fight, including members of the Congressional Oversight Panel, and through them, New York attorney general Eric Schneiderman, who was leading the dissident AGs and was in the process of getting a better settlement than the Feds were seeking until Obama flipped Schneiderman.

          And I know Dayen didn’t speak to Adams at all regarding anything in his book (save possibly from previous reporting Dayen recycled) because Adams told me.directly.

        2. Michael Olenick

          Was Dayen correct or incorrect on his “invalid” PSA’s? Incorrect. Not a single PSA was ever invalidated. None. Zero. There were some put-backs, which I don’t ever remember David referring to, but all the PSA’s are intact.

          Was he correct about “multiple laws” being violated on securitizations and the “invalidated PSAs?” Well, there were no “invalidated PSA’s” so, if he wrote that, it’d be wrong. On “multiple laws” being “violated” that’s grayer. There are laws and rules about trusts that may not have been adhered to, especially on timely assignments. Except that Lynn told me every time the government investigated if loans were timely conveyed into trusts, via assignments of mortgage (AOM), they were all there, stacked up neatly. Were tax laws violated? Lynn explained her theories to a roomful of senior IRS agents who listened then shrugged. Obviously, they didn’t think so.

          No invalidated PSA’s. No broken laws related to the securitizations. No to your questions.

          But there were problems, weren’t there? If not, there wouldn’t be the forged foreclosure documents. Yes, there were problems. I know because, unlike David Dayen, I was there from the get-go — before his three “foreclosure fighters” — and spent a lot of time with them. David’s entire outreach to check what happened was to write once, in passing, on a listserv, “I’m writing a book and you’re in it.” When I told him, after the fact, he never made an effort to reach out, he called me a liar.

          The truth is that David purposefully ignored the truth then gaslighted. He lied, he knew was lying, then he lied about the lying. Who gave him that idea? Lynn, who told him she was doing it to me. Rather than questioning Lynn’s integrity — as any real journalist would (especially given other evidence of Lynn’s credibility gap) — David laughed and thought lying, then lying about the lying, was a clever idea.

          How do I know all that? It was disclosed in a deposition in the lawsuit from Damien (a real foreclosure fighter) against Lynn just a few weeks ago. Damien is the first one to have found a lot of the signatory problems. He’s also person Lynn was supposed to be representing as his lawyer; instead she screwed him over, took his place, and his money. Here’s a long and entirely accurate piece about that:

          Why would Lynn not want David to call? Why would a woman who was over my house regularly — she had a celebratory dinner with me and my family the night she won her money — turn like that? Because I’m a witnesses to what Lynn did to Damien. I know that, after she became rich, Lynn’s attitude entirely changed. I realized, in hindsight, it was only about the money to her. In depositions she says she doesn’t bother reading most email from homeowners; she has her kids read and answer. She also has them make her restaurant reservations (she’s into some place with $20+ appetizers … for lunch – in suburban Florida, not Manhattan or somewhere). She had her in-ground pool dug up and moved a few feet. She staffed her “Housing Justice Foundation” with family members then wrote a misleading About Us to suggest otherwise. Lynn didn’t want a record supported by emails and events so she did a hit job on me and David Dayen sucked it up.

          I’d answer your question using citations from the book but David refused to send me a copy. There’s no way I was going to pay for a book about events I was in the middle of (and David wasn’t) so I borrowed one from the library. So I’m going from memory, though I did read it.

          Going back, if Lynn is to be believed, the government told her they checked many, many trusts and they were all kosher. So then, if the assignments were there, why did the foreclosure mills forge one’s after-the-fact? Nobody knows. Lynn could be lying. The government could be lying. The banks might not want to have released the original AOM’s, worried about losing vital paperwork in a web of court filings. They may not wanted to have risk paying all the mortgage assignment recording fees they sidestepped with MERS back in the day. What happened remains one of the unsolved mysteries of the whole fiasco, though it really affects the investors and the government.

          Just in case you’re still thinking how great Lynn is keep in mind that she lost all the subsequent cases. She only won the main one because of political pressure: Obama wanted to declare the foreclosure crisis over so the government pressured the American banks to pay Lynn money they knew she’d never win. That is, she won in the court of public opinion, not a court of law, and not on the merits. Her information was public, so she’s not a whistleblower. She could have found one or more people inside the foreclosure mills willing to act as real whistleblowers. That would’ve been a vastly stronger case. But there’d be a lot less money for her doing that and money is what this was all about, wasn’t it?

          David wrote a bestseller. I’m sure he made lots of money. Lynn has her millions to keep her cozy. Foreclosures tapered off, no thanks to any of the foreclosure fighters (and, arguably, despite their work). And there’s no historic record about what really happened, at least not yet.

  6. Fred

    Does the AmEx contract violate the stores right to free speech by prohibiting to openly discuss other payment plans?

    1. Clive Post author

      No more so than your typical contract of employment precludes you from discussion of commercially sensitive or confidential matters (such as you wouldn’t want your bank teller talking to a spouse — who might know you — about your personal financial details).

      In a little more nuanced detail, the store is quite at liberty to discuss card payments in general and even how, broadly, their costs affect their businesses. But they have to adhere to a non-disparage clause. And they cannot say “Visa charges me 2% and AmEx 5% so please don’t use your AmEx”.

      And perhaps accidentally you touch on a potentially overlooked point. It is generally assumed by those disagreeing with this judgement that better price transparency would always and every time result in cardholders maximising their utility by picking the card with the lowest merchant fees or being convinced by the merchant to do so. But this rational actor theory reliance is straight out of neoliberalism 1-0-1. It doesn’t allow for the possibility that actors would act irrationally or even undermine the system which someone is trying to impose in them. For example, if WalMart forced its workers to advise customers that this- or that-card costs 2% in fees but some other card costs 5% then I might well, counterintuitively, pick the higher fee card to stitch up WalMart.

      But that then would have unpredictable consequences. WalMart, to continue my example, has significant pricing power over its customers. It will more likely than not try to counter any consumer movement to teach it a lesson that way either by gaining margin elsewhere or withdrawing from the higher fees scheme. The customer definitely loses from the former and even the latter could create problems for some customers if they rely on a line of credit available on a card which is a member of the scheme WalMart exits and you can’t just go and get another card because you’ve got poor credit.

      The credentialed classes all too often make assumptions about the poor which don’t in reality apply or else the poor as a class don’t enter as a variable into their theories.

      I’m very loathed to at any time take a stance which runs contra to and offends progressive sensibilities, as I’ve done here. But without a thorough understanding of how card payments operate from a perspective of all parties in the system and all models of how they’d react to a change in how the system operates, there is a real risk of the road to Hell being paved with good intentions.

  7. flora

    Thanks very much for this post. You unpacked and sorted the case and its impact in a way I can understand.

  8. Michael

    Made me rethink the added value my card provider (Citi) claims for ” no foreign transaction fees!!!” I guess the card issuers that charge that fee do so on the “US side” of the transaction?

    Still pay the fee on my C.U. debit card (Visa) when I withdraw cash to buy gelato.

    1. Michael O

      No foreign transaction fees (never mind the abysmal exchange rate that – if cross referenced against their rate – looks like an astromical fee).


    Wait, what?

    “From a US perspective, credit card interchange fees are high — here, for example is Mastercards’s fee schedule which is complex (complexity being a feature not a bug) and compares poorly to the capped fee of 0.3% per transaction which the EU insists on for Mastercard and Visa when operating in an EU member state.”

    US retailers pay about TEN TIMES more than EU retailers to accept credit cards. And we are lining up against the retailers here?

    1. Clive Post author

      No, I’d on balance be happy to see fee capping — with the proviso that some sensitivity analysis was done to confirm this would not end up with affluent high FICO cardholders being subsided by poorer subprime ones (such as, for example, the card schemes compensating for lower interchange fees by increasing fees to them by card issuers who then stiff cardholders with higher interest rates, junk fees or low usage fees which disproportionately impact those who would find it difficult to access a low cost card product).

      But that’s not what Ohio (and the other joint complainants) did. Instead, they wandered down the antitrust garden path and got a little lost. They put up weak arguments, witnesses who performed poorly on the stand and tried to stretch the law. It didn’t work. It was probably worth a shot, but it was always a flimsy case.

      Getting a hopelessly pro-business Congress to act is undeniably fraught with difficulties. But it is the best solution to this problem. If people come to me whining about how it’s all too much bother and looking for a sympathetic ear and a shoulder to cry on because those meanies in the SCOTUS threw out their half-baked case, they won’t find one.

    2. flora

      I’m not sure, but I think it’s lining up against one party(s) side to a contract who wants to fiddle the contract terms to increase their gain mid-stream, a la mobile phone service providers who fiddle the contract terms for greater gain mid-stream against their customers, or something like that. I’m not a finance person.

      1. SME_MOFO

        One party is a global oligopoly offering take or leave it contracts merely to allow the use of the primary defacto means of exchange and the other is every business large and small being crushed by margin compression, subsidized international competition, and widespread assault on using plain currency. Whatever the merits of the case or the arguments, I always question when the outcome results in not being able to count the votes, because “rules”.

        1. Yves Smith

          No business needs to take Amex cards. That is the fallacy of your argument.

          Now if you want to argue Visa and Mastercard take too much, we all agree, but this case had absolutely zero to do with that.

          1. SME_MOFO

            Honestly, when i first considered the issue, I had a hard time imagining a small business that felt they could afford to turn down any possible transaction.

            But after my fallacy has been highlighted, my thoughts are now better organized.

            Of course businesses have the freedom to accept either VISA/MC or Amex or both or neither. It is clear that merchants have a tremendous amount of freedom. How could I have been so misled?

            1. Yves Smith

              Do you get out in the world? It is full of actual small businesses that don’t take Amex. So please don’t try counterfactual arguments.

              And how do you explain merchants who don’t take low fee Discover? Or Bitcoin?

              See this:

              In 2015, Visa cards accounted for over 44 percent and MasterCard accounted for 29 percent of transactions worldwide, according to a Nilson Report. American Express, on the other hand, had just over 7 percent of transactions and Discover lagged even further behind at 2.2 percent.


              If I find US stats, I’ll add them.

              There are even such things as merchants that don’t take cards at all. Many shoe repair stores operate that way. Ditto the tailor around the corner. Cash or fuggedabodit. And this is in high rent Manhattan.

        2. economicator

          Aye, SME_MOFO, my sentiments exactly, including your follow-up retort.
          And, due respect, but a bit disappointing to see something that smacks of ad hominem on the blog… even if justified (better to keep it above that here).

          And “two-sided market” is a thing? That’s a market?… I have to research that. It’s a new fundamental economic concept I have missed

          1. Yves Smith

            First, your insinuation is factually incorrect. It was Justica who attempted to defend Dayen by engaging in halo effect, a cognitive bias (seeing people as all good or all bad) based on false premises. Debunking her defense has nada to do with your attempt to depict us as engaging in invalid argumentation strategies in connection with the arguments made on the SCOTUS decision. It was simply to establish that Dayen should not be taken as gospel. In fact, this is true of any journalist. They are only as good as their sources. We’ve had to take issue even with Matt Taibbi upon occasion:


            Second, two sided markets is not a new concept, and the Supreme Court references make that clear. See:


  10. cynician

    I’m sorry guys, I have great respect for all posters here, and of course for the hosts. But I can’t shake the feeling of this being a hit job on Dayen. He may very well deserve it. And I have to put the disclaimer that there is nuance in the case that I did not fully follow, nor have I read the decision. Nor do I have relevant training or experience necessarily (just common sense I hope). But this:
    “retailers could not offer […] enticements to get customers to use other forms of payment” is the gist of the matter and it seems to me absurd to have it as the law of the land and make it enforceable.

    So if I am a gas station owner and prefer that customers pay cash rather than with AmEx (or make it Visa, or Mastercard), I would not be allowed to say, I’ll throw a free pack of chewing gum with that? That is absurd. Dictating another business what they can do with their own customers? Absurd. What is next – anything my merchant services provider wants, like bring them hot lunch because of their superior service be that as it may?
    Not trying to be flippant – just following the one-sided permissive slope of the decision.

    And – regardless of how many institutions have defined it, aren’t they all suspect – “two-sided markets”? Is that as much valid as shall we say, master-slave democracy??…

    I am rarely thrown in confusion after reading the arguments made in this blog.. but this time I am a little lost. I must be misunderstanding what the decision is really about. And about Dayen, I care much less – I tried to read his book and I gave up.. (too much drama obscured the takeway message).

    1. Yves Smith

      First, I suggest you look at what it looks like when this site goes after a writer:

      We have tons of articles like this on Andrew Ross Sorkin, Ezra Klein, and Adam Davidson. To pick one:

      When Naked Capitalism does a hit piece, you won’t be in any doubt about it. This post is in another universe and the difference should be obvious.

      Your charge is even more strained given that the post was written by Clive, who has no relationship to Dayen and wrote me about the overwrought hot takes on the SCOTUS decision before seeing the Dayen piece, which he thought was a good point of entry. The kvetching regarding Dayen’s other work came up ONLY in comments, and ONLY when a reader tried issuing a blanket defense of him. And the reason for the complaint was substantive: his book was inaccurate in its entire framing, as well as in important details (as you seem to recognize in your concluding remarks).

      Second, regarding the non-disparagement rules that Amex imposes, no merchant needs to use Amex. Amex is a niche product. Per above, it represents only 7% of transactions world wide. If they don’t like the terms and don’t use Amex, their customers still have Visa credit cards, MasterCard credit cards, Visa debit cards, MasterCard debit cards, and for merchants that have decided to go this route, ApplePay, which sits on top of the Visa/MC network. Oh, and of course, cash.

      Regarding your comment re steering, the premium cost of Amex to merchants is ~1% over Visa and Mastercard, and those networks typically charge 1.5% to 2.5%. That means that the cost to merchants of customers using a Visa or Mastercard versus cash or a debit card is much greater than the premium of Amex to Visa or Mastercard. Yet overwhelmingly, businesses do not steer customers to cash, or give discounts for payment in cash or by debit card:

      This sort of thing was probably why the plaintiffs had trouble proving harm to merchants.

      Finally, regarding “two-sided markets,” it isn’t an arcane concept:

    2. flora

      I guess, for me, writers writing on hot button issues who don’t have the facts, and who write with the aim of ‘riling up’ the readers – either left or right – need to be challenged on their facts and assertions. Shorthand: No more Tonkin Gulfs*. Riling up a readership to go off into political battle on false claims does the side more harm than good, imo. It undermines credibility.


  11. Dave not Dayden

    I am grateful we have comments back on this site.

    When the comments were tentatively removed it took a lot away from the site.

    I bought an advanced copy of Dayden’s book – I did not finish it. In the past he has demonstrated the capacity to write compelling material. Writer’s slump?

    Thanks again for allowing comments.

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