American Express Loses Legal Battle On Merchant Rules

American Express plans to appeal the court ruling and argued that its merchant rules protect card members from anti-consumer practices

American Express lost its legal battle against the United States Department of Justice (DOJ) related to its merchant rules. The DOJ alleged that the credit card company’s merchant rules prevents competition and drives fees higher for consumers.

The merchant rules of American Express restrict businesses from directing their customers to use lower cost payment cards.

The shares of American Express declined almost 2% to $78.19 per share at the time of this writing, around 3:08 in the afternoon in New York.

American Express’ merchant rules violate antitrust law

United States Judge Nicholas Garaufis found that the merchant rules of American Express violate antitrust law. In his ruling, the judge emphasized that the credit card company’s merchant rules “constitute an unlawful restraint on trade.”

Judge Garaufis also ordered American Express and the DOJ to submit proposals to resolve the issue. According to him, “the parties themselves are likely best equipped to determine how American Express’ merchant regulations might be rewritten” to satisfy the interest of the credit card company and comply with antitrust regulations.

American Express repeatedly explained in its regulatory filings that its business could suffer significant adverse effect if it would lose the antitrust lawsuit. The credit card company uses the fees generated from merchants to fund its rewards program and other perks for its cardholders.

American Express plans to appeal court’s ruling

American Express issued a statement indicating its disappointment and intention to appeal the court’s ruling. The credit card company believes that the ruling “will harm competition to the detriment of consumers and merchants.”

“American Express’ non-discrimination provisions protect card members from anti-consumer practices, including at the checkout counter, such as being told to pay with another card… We believe that freedom of choice and fair competition are worth defending. We look forward to presenting our case to the appellate court, and believe we should prevail on appeal,” said American Express.

Implications of the court ruling on American Express

Sterne Agee analysts Thomas McCrohan and Leonard DeProspo noted that American Express cards are “accepted at three million fewer locations” compared with Discover, MasterCard and Visa.  According to them, the current situation further complicates the actions that must be taken by American Express to prevent potential losses from other brands.

According to the analysts, “American Express is much more spend-centric…As a result, any volume shifts to competing brands could have a more pronounced effect given Visa and MasterCard issuers are more lending focused.”