Loyalty & Rewards

Judge Says AmEx Is Anti-Competitive

American Express can’t prevent merchants from suggesting that customers use a less-expensive payment card, a federal judge ruled on Thursday (Feb. 19).

AmEx’s rules that bar merchants from steering customers to cards with lower interchange fees are violations of U.S. antitrust law and “constitute an unlawful restraint on trade,” U.S. District Judge Nicholas Garaufis said in a 150-page decision. However, the judge added that rules blocking merchants that accept AmEx cards from disparaging the brand or rejecting it at checkout will likely remain in place, Bloomberg News reported.

The judge also left intact rules against “requiring customers to pay a fee when using their American Express card that is not also charged when using another card brand,” according to the decision. He also said the AmEx rules don’t have to be eliminated immediately, and that AmEx and the U.S. Justice Department, which filed the lawsuit, should submit a proposed remedy.

American Express said it will appeal the antitrust ruling. “The court’s ruling will not provide any benefit and will, in fact, harm competition by further entrenching the two dominant networks,” AmEx told CNBC in a prepared statement. “We continue to believe that the Department of Justice’s arguments are flawed and believe we should prevail on appeal.”

The case stems from a 2010 effort by the Justice Department and 17 states to get Visa, MasterCard and American Express to scrap their anti-steering rules, according to The Wall Street Journal. Visa and MasterCard, which have lower interchange fees than AmEx, agreed to let merchants offer discounts and other incentives to steer customers to use cards without rewards programs or other features that increase merchant fees.

AmEx refused to settle, claiming it wasn’t big enough to be anticompetitive, The Journal reported. In 2013, AmEx had 53.6 million cards in circulation, compared with U.S. card counts of 254.1 million for Visa and 178.3 million for MasterCard.

Garaufis disagreed, ruling that the anti-steering requirements “imposed actual, concrete harms on competition in the credit and charge card network services market.”

Thursday’s court loss came just a month after AmEx reported its first-ever trillion dollar year for card spending volume. But it also came a week after AmEx announced that Costco will no longer accept its cards after March 2016.

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