A federal court ruled Thursday that credit card provider American Express was in violation of U.S. antitrust laws, due to its policies prohibiting merchants from requesting that customers use a certain credit card over another.
In its defense, American Express contended that its policies allowed it to compete more favorably against larger providers, namely Visa and MasterCard and their partner banks. But in his ruling, U.S. District Court Judge Nicholas Garaufis said that AmEx’s policies impacted the competition negatively, and prevented merchants from reducing their processing costs for credit card transactions. In addition, Judge Garaufis also stated that American Express kept its customers in the dark regarding the cost merchants pay for them to use their credit cards.
The main talking point of the antitrust case was the processing fees merchants pay for credit and debit card transactions; these fees are not disclosed to consumers, but they nonetheless represent a significant expense for merchants who accept these cards. The fees are also supposed to be passed forward to consumers through nominal price increases, but would depend on the type of card used. Debit cards are usually cheaper to process than credit cards are, with cash back/frequent flier credit cards among the most expensive to process.
“Every day merchants make their vendors compete for their business and, hopefully, drive down prices,” opined antitrust and payments specialist Jeffrey Shinder in an interview with the Los Angeles Times. “That type of competition does not exist at all in the payment industry.” Shinder’s firm, Constantine Cannon, is handling a related, though separate class action lawsuit against American Express.
American Express has vowed to appeal the decision, preparing a statement that said that the federal ruling “will not provide any benefit to consumers and will, in fact, harm competition by further entrenching” Visa and MasterCard as the dominant providers in the credit card space. However, retailers and watchdog groups were in favor of the decision, including the National Retail Federation, which said that the ruling “vindicates what we’ve said all along,” meaning how the “broken” state of the credit card market has resulted in high fees for businesses and consumers alike.