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DOJ Sues Amex Over Card Merchant Incentives

By Jay Boehmer / October 05, 2010 / Contact Reporter
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American Express is fighting a U.S. Department of Justice antitrust lawsuit filed Monday that claims the card company, along with rivals Visa and MasterCard, prohibits merchants from offering incentives to use cheaper forms of payment.

Though Visa and MasterCard are named in the suit, the card networks agreed to a settlement with DOJ that, if approved by the court, immediately would "require the two companies to allow merchants to offer discounts, incentives and information to consumers to encourage the use of payment methods that are less costly," DOJ said.

American Express, however, said it would fight DOJ in court, claiming its merchant agreements "protect cardmembers against discrimination and disruption at the point of sale."

American Express has long charged higher fees to merchants in exchange for what it claims to be higher per-card spending and superior cardholder service. However, according to DOJ, which is joined by the states of Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio and Texas in the suit, the card provider's rules preclude merchants from encouraging consumers to use cheaper forms of payment.

"The proposed settlement with MasterCard and Visa is an important step in bringing more credit card competition to the point of sale," said Christine Varney, assistant attorney general and head of DOJ's antitrust division. "The department's lawsuit against American Express will continue that effort and, if successful, allow merchants more freedom to benefit their customers."

Amex chairman and CEO Kenneth Chenault claimed DOJ would give unfair advantage to Visa and MasterCard, which have lower merchant fees.

Chenault in a memo to employees explained the clause in American Express merchant agreement that has come under fire. "These protections are designed to ensure that our cardmembers are not discriminated against or inconvenienced by being asked to use another card at the point of sale," Chenault claimed. "This practice is known as steering, and the Justice Department is seeking to allow it."

American Express is by no means the dominant card provider in the United States, and Chenault said merchants have the freedom to accept their payment products or rely on competing forms of payment. "Merchants are free to either accept or not accept American Express cards," Chenault noted. "Likewise, consumers are free to use any card they wish. But when a merchant has signed a contract to accept American Express cards and a cardmember wants to use his or her card at that establishment, the consumer should be able to exercise their right without interference."

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