A federal judge’s ruling against American Express is a potential win for both merchants and consumers.
The judge ruled on Thursday that a longstanding practice by American Express aimed at keeping customers from using other forms of payment violates United States antitrust laws.
U.S. Judge Nicholas G. Garaufis of the Eastern District of New York ruled that American Express had created “an unlawful restraint” by prohibiting any merchant that accepts its cards from encouraging customers to pay with lower-cost cards.
This restriction upon merchants, Judge Garaufis wrote, creates “an environment in which there is nothing to offset credit card networks’ incentives — including American Express’s incentive — to charge merchants inflated prices for their services. This, in turn, results in higher costs to all consumers who purchase goods and services from these merchants.”
Merchants agree with the judge. In a lengthy response to the ruling, the Merchants Payments Coalition, a group of retailers, restaurants, gas stations and other consumer businesses, said consumers and merchants are “being charged a lot of money for very little service.”
The fees that American Express charges merchants are normally higher than those of Visa, MasterCard, Discover and other credit card providers.
“Today’s decision is a triumph for fair competition and for American consumers,” said Attorney General Eric Holder. “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 U.S. Department of Justice and 17 state attorneys general sued American Express, Visa and MasterCard in 2010 to eliminate restrictions that the three credit card networks imposed on merchants. The trial focused on credit card “swipe fees” which generate over $50 billion annually for credit card networks.
Settlements with Visa and MasterCard were filed at the same time the case against American Express was begun.
American Express said in a statement that it was “disappointed” with the ruling and would appeal the ruling. The judge said he would determine a remedy later. AmEx states that its merchant policy is aimed at protecting its card customers’ choice of payment.
“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,” AmEx said in its statement.
Merchants praise the judge’s decision.
“Today’s ruling is one step forward to bringing badly needed competition and transparency to the entire credit card industry,” the Merchants Payments 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.”