Credit card rules for merchants 'anticompetitive,' says Justice Department

By Matt Schulz

The rules merchants must follow in order to accept American Express, Visa and MasterCard credit cards in their businesses are "anticompetitive," according to a civil antitrust lawsuit filed Monday by the U.S. Justice Department.

The suit accuses American Express, MasterCard and Visa of prohibiting merchants from "encouraging consumers to use lower-cost payment methods" -- such as cash, for example -- when making purchases. However, Visa and MasterCard reached a proposed settlement with the government prior to the public announcement of the suit, leaving American Express as the only remaining target.

At issue are the rules that the credit card companies impose on merchants who choose to accept the cards for their business. To accept a particular type of card, merchants typically pay a variety of fees -- per transaction and on a monthly or yearly basis -- and have a contract that stipulates what those fees are and what they can and cannot do regarding acceptance of the card. 

In a statement released Monday, the government said the card companies' rules "prevent merchants from offering consumers discounts, rewards and information about card costs, ultimately resulting in consumers paying more for their purchases." in a press release. The statement added that merchants pay approximately $35 billion each year in “swipe fees” -- fees that a merchant must pay everytime a credit card is used to make a purchase.

According to the Justice Department, the proposed settlement requires MasterCard and Visa to immediately allow their merchants to:

• Offer discounts or rebates to customers for using a particular kind of credit card or for using other types of payments.
• Tell consumers the cost a merchant incurs when a consumer uses a particular kind of credit card network. 

American Express says it won't settle the case. The card company, which typically charges merchants higher fees than MasterCard and Visa, says the government's proposal would put AmEx at a disadvantage against its two larger competitors.

“We have no intention of settling the case,” said Kenneth Chenault, AmEx chairman and CEO. “We will defend the rights of our cardmembers at the point of sale and our own ability to negotiate freely with merchants. We are confident that the courts will recognize the perverse anti-competitive nature of the government’s case and that we will continue providing a competitive, superior service to cardmembers and merchants.”

Without a similar settlement from American Express, “the many merchants that accept American Express, as well as Visa and MasterCard, will not be able to take full advantage of their new options under the proposed settlement,” says the Justice Department.

Published: October 4, 2010