Yesterday the U.S. Department of Justice, along with seven states attorneys general, filed a civil antitrust lawsuit against American Express over rules it has in place that prevent merchants that accept its cards from offering incentives to consumers for paying with cards that have lower processing fees. The DOJ also said that it had reached a proposed settlement with Visa and MasterCard over its discounting restrictions.
"These three companies run the largest three credit card networks in the United States. Every time a consumer uses one of their credit cards to buy something from a merchant, that merchant pays a fee -- a fee that is passed on to consumers through higher prices," Attorney General Eric Holder said at a press conference yesterday.
Merchant agreements with these credit card companies currently prevent merchants from offering a discount or incentive for using a cheaper card, such as a debit card or credit card without a rewards program. Consumers wind up paying the same retail prices regardless of the cost of the transaction to the merchant.
The proposed settlement with Visa and MasterCard would lift those restrictions. "If you use a preferred, lower-cost credit card, an airline could offer you more miles or a merchant could provide you with a rebate," Holder said.
American Express has no intentions of settling, Vice Chairman Ed Gilligan said yesterday during a conference call with media and investors. "We deliver high-spending premium customers to our merchants in the U.S. and around the world. And if merchants steer them to Visa and MasterCard, that would be damaging to us."
Visa and MasterCard already control more than 70 percent of the market and have 10 times as many cards as American Express, pointed out Kenneth I. Chenault, American Express chairman and chief executive officer.
"The sheer number of Visa and MasterCard credit cards, and the fact that most of their customers do not carry an American Express product, makes it virtually impossible for merchants to steer customers away from the dominant networks, even if they have the right to do so," he said.
Changes to Visa and MasterCard's rules go into effect "as soon as MasterCard and Visa either do this voluntarily or as soon as the court approves the settlement," David Boies, chairman of Boies, Schiller & Flexner LLP, said during the call. His firm has been hired to serve as legal counsel for the lawsuit.
"You're going to see what benefit, if any, there is to consumers. You're going to see what harm there is, and we know there will be some harm, to consumers. So you're going to see something, some real-life experience from this as this case goes on, because this is going to go into effect immediately with respect to more than 75 (percent) of the market."
Weigh in: How do you feel about the idea of merchants having the ability to steer your payment choices? Would you prefer to get discounts for paying with lower-cost cards or would you see it a penalty against higher-cost rewards cards?
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