Judge: Amex Cannot Prevent Merchants from Steering Customers to Low-Cost Cards

Feb. 23, 2015

Judge: Amex Cannot Prevent Merchants from Steering Customers to Low-Cost Cards American Express was dealt a defeat in federal court late last week when U.S. District Court Judge Nicholas Garaufis ruled the company could not prevent merchants from trying to convince customers to use lower cost credit cards. The court said American Express’ non-discrimination provisions—rules that stated if a merchant accepts American Express cards it cannot steer customers toward lower-cost alternatives—harm competition.

New York City-based American Express argued its rules promote competition because they enable it to exist beside Visa, MasterCard, Discover and others that are not as expensive for merchants to accept. Judge Garaufis disagreed.

“The Court’s ruling establishes that the American Express anti-steering rules block merchants from using competition to keep credit card swipe fees down, which means higher costs to those merchants’ customers,” said Deputy Assistant Attorney General for the Antitrust Division Leslie C. Overton. “I am proud of the outstanding work done by the investigative and trial teams. As today’s decision reaffirms, the Antitrust Division remains committed to ensuring that competition is not restricted in this important sector of the economy.” 

In 2010, the government sued all three major card networks saying restrictions they imposed on merchants were anticompetitive. Visa and MasterCard settled in 2011, but American Express chose to continue. In a statement, the company said it was “disappointed” in the ruling and will appeal.

“Today’s decision would harm competition by further entrenching the two dominant payment networks, Visa and MasterCard. Only a small percentage of Visa and MasterCard holders carry American Express cards,” the statement said. “By contrast, most American Express Card Members carry a competing card in their wallet. Today’s decision means merchants would be able to steer customers to use Visa and MasterCard, while it would be virtually impossible to steer away from them.”