Judge Tosses Anti-Steering Rules, but Expert Says Door May Be Open for Appeal (Feb. 19, 2015)
A federal judge has ruled that American Express no longer may bar retailers from steering customers toward paying with cards with lower merchant fees. In a ruling issued today, U.S. District Court Judge Nicholas Garaufis of the Eastern District of New York found that the non-discrimination provisions included in American Express’ merchant contracts violate antitrust laws. The provisions, which prohibit merchants that accept American Express cards from telling customers they prefer to accept cards with lower fees, illegally stifle price competition between card networks, the court ruled. Judge Garaufis said the court would issue a remedy—which could entail changing or removing the rules—at a later date.
The case, which was heard last year, dates back to 2010, when the DOJ filed an antitrust lawsuit after American Express declined to join an industry-wide agreement that would allow merchants to direct customers toward using payment cards with lower fees. “Both Visa and MasterCard already agreed they would no longer prohibit merchants from steering customers to payment cards that have lower fees,” notes Judith Rinearson, a partner with law firm Bryan Cave LLP and Paybefore contributing editor. “Basically, many believe the court’s decision has provided a level playing ground for all networks,” she tells Paybefore.
American Express said it would appeal the ruling and claimed that the non-discrimination rules promote competition by enabling its cards to compete with MasterCard and Visa, which together have 1 billion cards in circulation in the U.S., compared with American Express’ 55 million.
“The court’s ruling will not provide any benefit to consumers and will, in fact, harm competition by further entrenching the two dominant networks,” American Express said in a statement. The network argued during the court hearing that its higher fees help it compete by funding services that set it apart from its competitors.
Philip Bartz, a partner with Bryan Cave and an antitrust expert, noted that there are several aspects of the decision upon which American Express potentially could base an appeal. “The key antitrust issues in this case—market definition, market power and adverse competitive effects— are very complicated, given the facts,” Bartz tells Paybefore. For instance, the court’s finding that American Express has market power—a requirement for an antitrust violation—with only a 26 percent market share is “particularly interesting,” he said. “Judge Garaufis’ ruling will not be the final word on this, I suspect.”