Amex Slapped With Antitrust Suit, Visa & Mastercard Settle

The Justice Department sued Amex today, saying that the restrictions it places on merchants were anti-competitive. According to the complaint, the rules “impede merchants from promoting or encouraging the use of a competing credit or charge card with lower card acceptance fees.”

Visa and Mastercard, who were part of the discussions leading up to the announcement, decided to settle. Amex said they wouldn’t settle because it doesn’t dominate commerce in such a way that merchants would have to accept its rules. Sure.

MasterCard, Visa Settle Antitrust Case as Amex Fights Lawsuit [Bloomberg]

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  1. dg says:

    Personally, I think that if Visa and Mastercard and Amex want to offer cards that give rewards to the customers, that THEY should fund that. The merchants shouldn’t be forced to pay more in processing fees just because a customer coming into their store chooses to use one card or the other…

    • frank64 says:

      I agree, right now it is a kind of ponzi scheme, and although we benefit a little if we have reward cards, they get the money from us and everyone else in higher prices/fees.

      What they should do is make it an option for merchants to give the rewards for purchases. They can decide if they want to do this as a marketing opportunity. These merchants can benefit by distinguishing themselves if they want. They could advertise and post signs saying “Rewards benefits offered here!” Then if the banks are right, and the merchants do get the benefits, they will pay. Everyone is happy!

      • DanRydell says:

        ??? It’s not anything like a Ponzi scheme

        • frank64 says:

          You are right, I know I was using it very loosely, but other people are asked to pay for the banks marketing. Other people being people who really don’t have a choice or knowledge, like cash customers, and CC users without rewards, and merchants. Us rewards users are getting a cut, but that doesn’t make it right.

          • BStu78 says:

            And the merchant’s solution is to make Credit Card using customers subsidize the costs of dealing with cash which aren’t surcharged at all because no one bothers to itemize the time spent counting money, delivering money to banks, etc. Because that’s just “doing business” while accepting electronic payments somehow isn’t.

            • frank64 says:

              It is because they have some control over the cost of cash, and like keeping the store clean is a cost of doing business that is not directly attributable to each customer. The total cost of cash has not gone up as a percentage of business and credit card fees have doubled.

              Although there is a cost to cash, it is not 3%, each additional cash customer does not add a set percentage to each transaction like it does for a CC. Merchants never said cash didn’t have costs, or credit card sales were not valuable, they just say that the cost is higher than it should be and they have no control. All they want is some control.

              • BStu78 says:

                I’m not aware of any retailer ever paying attention to what the costs of cash are. And I’ve been a retailer. We considered cash “free” but that isn’t remotely the case. Cash sales were a very small part of our business, but we spent at least 30 minutes a day when an extra hour every week for bank visits. Just looking at that cost, I could see it costing 2-3% of our annual cash revenue. The fact that so many more people pay with CC only increases the cost of cash, too, since so much of it is worker hours that will need to be spent irregardless of the revenue size. The cost of cash is largely fixed, while credit cards are a percentage of revenue. So, retailers may want more business in cash to make it more efficient, but again CC using customers shouldn’t have to pay for that.

                • mac-phisto says:

                  don’t forget that banks often charge businesses to process cash, you may need to contract armored car or courier service to receive &/or deliver it & your risk of theft increases (which increases costs spent on ancillary services, like security systems, cameras, a safe, insurance, etc).

                  processing payments costs money. businesses just need to accept that. it’s like electricity – you simply can’t do without it.

                  • frank64 says:

                    Electricity is a reconized monopoly and prices are regulated. I don’t want to see price regulation for fees, but there needs to be some way to allow market forces to help.

                    Again, no one is saying there should be no cost to processing, it is just that now the cost is higher than market prices would support. You list an example of cost of cash, but that does not change the fact that to many merchants this cost is not as high as CC fees. After employment costs, many merchants list fees as the next highest operating expense. They should be able to manage these costs, like any other cost. It does not mean they want it for free.

    • sleze69 says:

      They do fund it…via their processing fees, annual fees and interest fees. What I think we are going to see here is that prices will remain the same but usage of CCs will add a 3% fee to those transactions – this is the opposite of what the Justice Department wants.

      Count me against this.

  2. Xenth. says:

    This is really going to change the way credit cards work. I doubt we’ll be seeing any rewards or cashback cards a year from now.

  3. Nick says:

    I’m not sure I understand this — The article suggests that one of the issues being addressed is that, if a merchant accepts AMEX, they must accept all AMEX cards. (Same with Visa and MC.) So is the point of this to allow merchants to say that they “accept VISA/MC/AMEX,” but only the particular version of those cards that are cheapest for them to process?

    Also, am I the only one who doesn’t feel sympathy for the merchants here? If you don’t want to accept credit cards, then don’t. The costs & benefits accepting credit cards are a business decision. Merchants don’t want to choose–they want some magical third option where they still get to accept credit cards but don’t have to pay for it.

    • ShruggingGalt says:

      I don’t think that’s the case for all merchants.

      The problem is that the merchant has to pay the higher premium for customers who use rewards cards. And can’t charge that customer more.

      Trying to think of an equivalent analogy for consumers: very hard to come up with one!

      Merchants sell the same product for the same price to every consumer, but the consumer who uses a reward card costs the merchant more. Which drives the prices up for everybody.

      With this being said, I don’t completely understand the merchants wanting to do this – in order to stop the rewards cards you’d have to become familiar with every single one, which is going to be hard to do…..

      • Gulliver says:

        The best analogy I can come up with would be printer ink. If I own a HP printer, I am not required to buy only HP ink. If another company makes a better cheaper product I am free to buy it.

      • frank64 says:

        I guess an analogy would be if there was only one cheese supplier, and he forced pizza places not to charge for it. But the pizza guy needs cheese for his pizza. So now the pizza owner needs to raise the price of everything, customers find this out and order extra cheese on the pizza, but find he can’t really raise prices due to competitive pressure. Customers love it because they get extra cheese for free. Some even ask for triple cheese and tells the merchant rules are rules.

        Your right though, there is no real world analogy because no where else is a supplier telling a merchant he can not charge a customer anything extra for his direct usage of a product.

    • frank64 says:

      It is a business decision they had little control over. As customers we didn’t either. We had to pay the same thing no matter if we used cards or not(with very few exceptions). This is why the costs of the fees have been rising, merchants felt they had to pay them because something like 70% of all transactions involved cards.

      • sleze69 says:

        Little control over? My auto mechanic doesn’t accept Amex (my preferred card)…so I pay with my MC. Sounds more like TOTAL control over it.

        • frank64 says:

          Little control over the fees or any flexibility in how they may apply them. Yes, they opted not to accept Amex and that is one of the easier decisions. Most merchants feel they must accept Visa/Mastercard because about 70% of retail transactions involve them.

    • meternx01 says:

      Our local alcohol shop does a discount for cash / debit, so they didn’t add a surcharge. They mitigated the merchant fee by having you pay full price if you use credit.

      If you doubt that thos is just because its not a big chain, i remind you that in Texas alcohol is a big business. They made a choice and seem to be doing just fine using their strategy.

  4. raydee wandered off on a tangent and got lost says:

    Well, my access to reading the whole article is restricted by a pay barrier …

    but I will weigh in on how much I HATE that some stores take some cards but not others. I worked at a store where we could not take Discover cards. The reason the store could not accept Discover was never explained to me. And there are times where I would like to pay with Card A, but Card A is not accepted, only B, C, and D.

  5. Fumanchu says:

    I really wish the orginal article or this posting said what it is about their merchant agreements are anti-competitive. To me, the fact that AMEX charges much higer fees to vendors who allow their card to be used in their stores as compared to card companies like mastercard and visa shows they aren’t colluding.

    AMEX doesn’t force any vendor to allow its customers to use AMEX. The vendors choose to allow the usuage of amex as a form of payment, and in the choice comes the merchant agreement with higher fees and no ability to raise your prices for credit card users.

    I really don’t understand how any of this is anti-competitive. OR what it’s supposed to be anti-competitive with. Cash? No one makes money off the produciton of cash, so no compitition there. Debit cards? Debit cards, either don’t charge a fee or have the same merchant agreement as credit cards. And no one allows checks anymore so that rules that out too….

    I really don’t get it.

    • meb says:

      As a merchant, when I agree to their terms of service I am not allowed to state that used a Visa or MasterCard will cost me less.

      • frank64 says:

        Plus, I believe I have read that in the Amex agreement are terms that take into account the Visa/Mastercard agreement.

    • frank64 says:

      Well, one thing that although Amex charges more, the merchants are not allowed to charge us more. Seems anti-competitive.

      One problem in general is the competition between Visa/Mastercard/Amex is never about pricing for the ultimate consumer. Visa/Mastercard compete by telling the banks how much money they can get for them from the merchants. The competition is really a reverse of our interests, we just pay the price in the cost of things we purchase, but by design it is very indirect.

      • Fumanchu says:

        It’s not anti-competive because as a vendor you can and many many do choose just not to allow thier customers to use AMEX at their store.

  6. The cake is a lie! says:

    http://online.wsj.com/article/SB10001424052748704631504575532074128517394.html?mod=googlenews_wsj

    That is probably a better link for the story for those who don’t have an account with WSJ.

  7. odarkshineo says:

    This seems to have gone terribly wrong…the fewest places take amex..i seriously doubt amex has a monopoly vs the other 2…o justice where art thou? Amex > visa/mc from consumer standpoint.

    • sonneillon says:

      Visa and MC were willing to play ball. Amex wasn’t. Don’t piss in the justice departments eye.

  8. Holybalheadedchrist! says:

    rewards are kind of stupid anyway. So you give me back an infinitesimal percentage of the purchases I made? Whoopty shit. That’s like a dealership saying, “Hey, for $10K in auto repairs we’ll give you a free oil change.”

    • Veeber says:

      Not sure what rewards you get, but I get 5% on gas/pharmacy/grocery purchases. In your 10k example that would be $500. The rest isn’t as exciting but still 1.5% is better than nothing.

    • Southern says:

      That all depends on a number of factors. If you use your Visa to buy pretty much EVERYTHING every month (all your bills (cable, cell phone, electricity, etc.), groceries, gasoline, oil changes, going out to eat, etc.), AND and then pay the card off every month, those rewards add up – A family of 4 can easily rack up $25k+ (or more) a year of living expenses on a VISA card; with a 1.5% cash back option, that’s a free ~$400 a year. Definitely more than an oil change. :-)

      And small businesses? That easily rack up ~$100,000 on their company VISA? Would you throw away $1,500 a year if all you had to do was use one VISA card instead of another?

      Granted, the whole “rewards cards raise prices for everyone else” is a valid arguement, but that’s not the fault of the person that uses the rewards card – that’s the fault of the competing card companies trying to get your business (just like some banks that are offering you a free $200-$500 just for opening an account with them).

      • Gulliver says:

        That is exactly the point. IT is the CARDS competing, NOT the merchant. If I choose not to honor an extra expense for rewards, i should not have to. BUT, Visa and MC with their monopoly DEMAND that I do. It would be like Ford forcing me to buy only their cars and all replacement parts from them

    • ecwis says:

      I get 2% cash back. That’s pretty substantial if you spend a lot on credit cards.

  9. davidsco says:

    I guess the fact that Costco only accepts Amex escapes them

    • Fumanchu says:

      Escapes who?

    • ZippoGuaillo says:

      Costco only takes AmEx because they got a sweet deal by doing it because by doing so they got millions of their customers (such as myself) to sign up for their Costco branded AmEx cards. So I
      ‘m pretty sure they’re paying less than most guys pay Visa or Mastercard. But most merchants can’t get millions of their customers to sign up for AmEx cards, so they gotta pay the sky-high regular price

  10. evnmorlo says:

    Thousands of different types of cards issued by 4 processors is already a monopoly. The Justice Department was just unhappy with its Christmas presents last year.

  11. Plasmafox says:

    The gist of this is that merchants can now offer EXCLUSIVE DISCOUNTS only to people who pay a specific way. This is generally anticonsumer and puts small businesses at risk of exploitation by credit card companies, if they’re allowed to pay retailers for such treatment- in this economy, a lump sum may be an offer they can’t refuse.

    On the other hand, it allow merchants to suggest people use forms of payment that cost them less while still accepting the options that cost more, which is great for small businesses on the whole and will save a supercorp like walmart millions.

  12. chimpski says:

    AMEX treated me like crap. I canceled my wife’s and mine’s AMEX recently, we aren’t buying anything big anytime soon, so I don’t care about the temp ding in my score. We are both in the 800+ range anyway.
    Not a comment on the article. Just adding to general AMEX feeling.

  13. CapitalC says:

    I don’t see where there’s anything anti-competitive… Visa charges a certain percentage to process their transactions, Amex charges more. Merchants aren’t forced to accept ANY credit cards, they can tell their customers “CASH ONLY!” if they wanted, they only do it as a convenience to their customers.

    As a consumer and as a retailer, I’d love to see lower fees for CC transactions, but I don’t see it as anti-competitive when they offer a service at a rate they chose.