Antitrust Law Daily Wrap Up, ANTITRUST NEWS: American Express anti-steering rules impede competition, consumers charge, (Apr 2, 2015)

By Linda O’Brien, J.D., LL.M.

Financial services company American Express entered into illegal vertical agreements with merchants, 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 (Easton v. American Express Company, April 1, 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.

James Easton, Paul Kashishian, Gianna Valdes, Chad Tintrow, and Matthew Moriarty 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.

According to the complaint, beginning in 2004, AmEx included “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 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, the plaintiffs charged.

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. Merchants facing increased credit card acceptance costs pass the additional costs upon to customers in the form of higher retail prices. If merchants were free to give their customers incentives to use less costly credit cards, AmEx would face the prospect of losing business as consumers respond to these incentives. The anti-steering rules insulate AmEx from such competition. By prohibiting merchants from providing consumers with incentives to switch to an alternative payment card, the anti-steering rules serve to entrench AmEx’s market power and allow AmEx to extract supracompetitive discount rates from merchants.

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 the company’s merchant agreements were anticompetitive (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.

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-01770.

Attorneys: Joseph J. Tabacco, Jr. (Berman DeValerio), Marvin A. Miller (Miller Law LLC), Eric D. Barton (Wagstaff & Cartmell LLP), Jared Stamell (Stamell & Schager LLP), and Shpetim Ademi (Ademi & O’Reilly LLP) for James Easton, Paul Kashishian, Gianna Valdes, Chad Tintrow, and Matthew Moriarty.

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

News: Antitrust NewYorkNews