Antitrust Law Daily Wrap Up, ANTITRUST NEWS: American Express anti-steering rules alleged to impede competition, (Apr 8, 2015)

By Linda O’Brien, J.D., LL.M.

Financial services company American Express entered into illegal vertical agreements with merchants, known as anti-steering rules, which artificially inflated the cost of products and services sold by merchants who accept American Express credit cards, according to a complaint filed by a group of consumers in the federal district court in Brooklyn, New York (O’Keefe v. American Express Company, April 7, 2015).

Services provided to merchants that accept credit cards are referred to as General Purpose Credit and Charge Card (GPCC) network services. GPCC network services allow merchants to capture, authorize, and settle transactions for customers who pay with their credit or charge card. There are four major competing firms in the GPCC network services market: American Express (AmEx), Visa, MasterCard, and Discover.

Shawn O’Keefe, Francisco Robleto, Jr., and Michael Thomas Reid are consumers who have purchased products or services—using their MasterCard, Visa, or Discover credit cards—from a merchant that accepts American Express payment cards.

The complaint states that, when a consumer uses an AmEx branded credit card for payment, the merchant is charged a merchant discount fee that is approximately three percent of the total transaction amount. Other credit cards—such as MasterCard, Visa, and Discover—carry much lower merchant discount rates than AmEx. If merchants were able to “steer” transactions to payment cards other than AmEx, the merchants would realize significant savings. In a competitive retail market, those savings would be passed along to consumers in the form of lower everyday prices for products and services, the plaintiffs assert.

According to the complaint, AmEx includes “anti-steering” rules in its merchant acceptance agreements that expressly prohibited merchants from steering transactions to less costly payment cards, including (1) offering discounts for using a less costly payment cards, (2) verbally asking customers to use a different payment card, (3) posting signs of less expensive payment networks while not posting the sign of AmEx, or (4) imposing a surcharge for using AmEx branded payment cards. The rules prohibit merchants from engaging in such procompetitive practices. The intended and actual result of the anti-steering rules was the near-total insulation from price-based competition in the payment card acceptance services markets, it was claimed. Further, the rules allegedly operate to block AmEx-accepting merchants from encouraging customers to use any charge card other than an AmEx card, even when the other card is less expensive for the merchant to accept.

The complaint also alleges that the fees that AmEx is able to charge merchants for processing transactions on the AmEx payment card network would be greatly diminished in the absence of the anti-steering rules. Merchants would incur lower fees and would pass along the benefits to customers in the form of lower retail prices. If merchants were free to give their customers incentives to use less expensive credit cards, then only consumers who choose to use the more expensive payment card would be compelled to pay for the privilege.

AmEx has demonstrated market power by imposing significant price increases on merchants without any meaningful attrition due in part to AmEx’s highly insistent and loyal cardholder base. The merchants’ ability to resist AmEx’s anticompetitive restraints by ending acceptance of AmEx cards is checked by a substantial segment of AmEx’s cardholder base that insists on paying with their AmEx cards and would shop elsewhere if unable to use their card of choice, the complaint states.

In 2010, the U.S. Department of Justice and 17 states brought an enforcement action against AmEx, MasterCard, and Visa, alleging that the anti-steering provisions in each network’s merchant agreements were anticompetitive restraints (U.S. v. American Express Co, Dkt. No. 1:10-cv-04496). While MasterCard and Visa agreed to settle the charges, AmEx chose to litigate. Following a trial in February 2015, the court found that AmEx’s anti-steering rules were unlawful restraints on trade in violation of the Sherman Act.

The plaintiffs assert claims for unfair competition, unjust enrichment, and violations of Section 1 of the Sherman Act. The action seeks declaratory relief, restitution, damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-01910.

Attorneys: Joseph J. Tabacco, Jr. and Todd Seaver (Berman DeValerio) and Jay B. Shapiro and Samuel O. Patmore (Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.) for Shawn O’Keefe, Francisco Robleto, Jr., and Michael Thomas Reid.

Companies: American Express Company; American Express Travel Related Services Company, Inc.

News: Antitrust NewYorkNews