After years of fighting the U.S. Department of Justice over the right to prevent merchants from steering customers to cheaper forms of payment, American Express, after losing a lawsuit in February, acquiesced last week, submitting a court-ordered proposal to alter some unlawful provisions within its merchant rules.
According to the Amex-proposed resolution, which DOJ blasted as inadequate, merchants that accept its cards would have to mind a litany of carve-outs and caveats if they choose to steer at the point of sale.
Among those, Amex proposed in a court filing dated March 23 that merchants could steer cardholders only to lower-cost "general purpose" credit or charge cards—thereby excluding generally cheaper debit cards, as well as alternative forms of payment.
Also, if a merchant chooses to steer, it would have to communicate to consumers that they accept American Express in addition to their preferred payment method, as per the company's proposal.
Amex also would require "reasonable advance notice from a merchant before it begins steering away from American Express after having not done so during the preceding 12 months," the proposal noted.
Further, Amex wants the right to terminate acceptance agreements with merchants that elect to steer.
Amex also wants the legal right to include in merchant agreements anti-steering provisions, as long as they are "individually" negotiated with merchants and not part of its "standard" agreement.
Some of Amex's proposed provisions could confound merchants, argued DOJ.
For example, Amex proposed merchants could engage only in "transaction-level steering," meaning they could encourage customers to use other cards only when a specific transaction is more expensive on Amex. Merchants would not be able to assume all Amex transactions cost more than those on competing networks, under the proposal.
While merchant fees for Visa and MasterCard products on average are less costly for merchants, some Amex products have average merchant fees lower than those of premium Visa and MasterCard cards.
Amex also argued that steering cuts both ways: If merchants can steer, so can Amex. The firm proposed to preserve in a final judgment its right to steer cardholders to merchants "that provide a positive point-of sale experience for American Express." (DOJ noted that Amex already could do so and therefore would not need to include it in a final order.)
DOJ criticized Amex's proposals, arguing in court filings that the company's conditions and provisions do little to remedy the antitrust violations a federal judge in Brooklyn concluded Amex had violated.
At the behest of the judge, Amex and DOJ this month haggled over a negotiated agreement for the terms of the court-issued final judgment, exposing vastly differing perspectives.
While there were a few points of agreement, DOJ broadly rejected Amex's proposals, calling some "overly restrictive" or "unworkable." It asked the court to do the same.
"Amex has proposed a remedy that would perpetuate its suppression of competition," argued DOJ, which filed with the court its own set of proposals. "Rather than respect the court's decision and open up the market to competition, Amex would restrict and punish steering to the point that merchants might find no workable ways to reduce their acceptance costs."
The final order ultimately sits in the hands of the court. Further, Amex in February broadcast intentions to appeal the verdict.
This report originally appeared in The Beat.