A federal judge ruled Thursday, Feb. 19, that American Express violated US antitrust laws by prohibiting merchants from requesting that customers use other credit cards.
American Express typically charges merchants higher fees compared to other companies, such as Visa, MasterCard and Discover. But the company bars merchants that accept its cards from encouraging customers to pay with lower-cost cards.
In a 150-page decision, U.S. District Judge Nicholas Garaufis in Brooklyn wrote that the New York-based company’s activities “imposed actual, concrete harms on competition in the credit and charge card network services market.”
“Today’s decision is a triumph for fair competition and for American consumers,” U.S. Attorney General Eric Holder said in a statement. “By recognizing that American Express’s rules harm competition, the court vindicates the promise of robust marketplaces that is enshrined in our antitrust laws.”
The decision is also a victory for the US government and 17 states, which sued the company in 2010 for similar allegations.
Merchants throughout the country also expressed satisfaction with the court’s ruling.
“Today’s ruling is one step forward to bringing badly needed competition transparency to the entire credit card industry,” Merchants Payment Coalition, a group of retailers, restaurants, gas stations and other consumer businesses, said in a statement. “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 to accept credit and debit cards.”
The decision comes amid a bad month for the company, which announced last week it would be ending partnerships with airline company JetBlue and retailer Costco. Following the announcement of Thursday’s ruling, American Express shares fell 1.7 percent to $78.40.
The company said it will appeal the decision.
“The court’s ruling will not provide any benefit to consumers and will, in fact, harm competition by further entrenching the two dominant networks,” the company said in reference to Visa and MasterCard.
American Express has also said its premium services justify its higher processing fees, and that its merchant rules help it compete with Visa and MasterCard, which together have more than 1.1 billion cards in the United States; American Express has 55 million.
“Eliminating these protections would inhibit consumers’ choice to pay with their preferred payment method and allow merchants who have agreed to honor our cards to then discriminate against them when our card members choose to pay with American Express,” the company stated.
However, Garaufis wrote that the company wrongfully exploited its 26.4 share of purchase volume in the country’s credit and charge card market by banning merchants from encouraging customers to use other cards.
“There is nothing to offset credit card networks’ incentives – including American Express’s incentive – to charge merchants inflated prices for their services,” the judge wrote. “This, in turn, results in higher costs to all consumers who purchase goods and services from these merchants.”
Visa and MasterCard formerly had similar nondisclosure policies, but ended them after settling with the Justice Department in 2010, the Associated Press reported.
American Express policies will not change immediately with the ruling. Garaufis requested that the company and the Justice Department submit proposals on how to address the situation as a result of the decision. If the company ends up having to lower its fees, it will likely affect its long-term profitability and its ability to provide consumers points or airline miles, The New York Times reported.
(With reports from Associated Press, Reuters and The New York Times)
