Legal Battle Between American Express & DOJ Could Change Credit Card Purchases As We Know Them

A four-year battle between American Express and the Justice Department comes to a head today in court, and the outcome could bring significant changes to the credit card industry.

The case pits American Express against the Justice Department over the fees merchants pay each time a customer uses a credit card at the checkout, Time reports.

The Department of Justice argues that AmEx’s “take it or leave it” policy, which forbids its merchant partners from offering customers incentives to use cards that are cheaper to process, is anti-competitive because the credit card company is too important for most businesses to drop.

While all credit card companies require merchants to pay a processing fee – generally 2% and 3% of the total purchase cost – the government alleges that AmEx charges the highest merchant fees of any network.

Additionally, the Department alleges that even customers who use a different card end up paying for AmEx’s fees because merchants compensate by increasing prices.

For its part American Express denies the allegations, arguing that the company’s 53.6 million cards in circulation is much too small to be considered anti-competitive.

Officials for the company say the higher fees are necessary in order to provide merchants with services like fraud reduction programs, financing and marketing, and data analytics.

However, providing those services haven’t been enough to sway the Justice Department from seeking changes to AmEx’s practices.

The current issues began back in 2010 when the Department filed a lawsuit against American Express, MasterCard and Visa for a number of merchant restrictions that were found to cost consumers more for their purchases.

While Visa and MasterCard agreed to pay $5.7 billion to settle the antitrust allegations, American Express persisted.

The company did reach an agreement with merchants that allowed the company to add a surcharge to AmEx purchases as long as they added the same charge to all credit card purchases.

However, that agreement didn’t sit well with the Justice Department and it once again sought to make AmEx agree to the previous Visa and MasterCard settlement.

If the Justice Department is victorious in its case, consumers could see lower prices at check-out since merchants would no longer have to pass on processing fees to consumers.

Additionally, merchants would be allowed to offer incentives for customers who choose to use a competitor’s card for their purchases.

For American Express a loss could cut into the company’s profits, meaning there could be fewer customer benefits such as frequent-flyer miles and other discounts.

AmEx’s Battle With the Feds Could Mean Lower Costs for Credit-Card Users [Time]

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  1. MathManv2point0 says:

    In my area, gas stations on average charge 10 cents (2-3%) less per gallon of gas than credit card. That leaves it to the consumer to decide if they want to pay for the convenience of a middle man and not having to carry cash or choose carry cash and get a discount.

    Obviously I do not know enough about credit cards and merchant laws but why can’t merchants do that for all items paid via cash? In having worked in jobs using a cash register I know it’s not that difficult to program a button (call it cash payment) and mark-down 2-3%. Anyone able to offer an education?

    • MathManv2point0 says:

      Ok, just read a WSJ article where it was said that the terms merchant’s contracts with credit cards prevent merchants from offering a cash discount. Perhaps I should have taken 10 seconds to research…

  2. Pacer says:

    This is interesting to me because I remember about 25 years ago MC and Visa made deals with merchants and merchants would not take Amex credit cards. I always had to ask if a merchant or restaurant accepted Amex before I paid for merchandise or a meal. The DOJ didn’t like it then and they sure don’t like that stuff now.

  3. offenhauser says:

    “If the Justice Department is victorious in its case, consumers could see lower prices at check-out since merchants would no longer have to pass on processing fees to consumers” Does anyone actually believe this would happen?