American Express wins right to block merchants from promoting rival cards
The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we do receive compensation when you click on links to products from our partners. Learn more about our advertising policy
Earlier this week, a federal appeals court ruled that American Express can prevent merchants from steering customers to credit cards with lower transaction fees. This decision, which overturned a lower court’s 2015 ruling, is a major victory for the New York-based credit card company in a long-running lawsuit.
At the heart of the lawsuit were the nondiscriminatory provisions (NDPs) found in American Express’ merchant contract. These provisions bar merchants from offering cardholders discounts and incentives for using cards that are less costly to the merchant, expressing preferences toward particular cards or disclosing the costs that merchants pay to accept individual cards.
Merchants protest high swipe fees
The driving concern behind the lawsuit were the swipe fees that merchants pay to American Express each time they process a credit card payment. Because American Express typically charges a higher swipe fee than Visa, MasterCard or Discover, merchants were pushing for leeway to encourage customers to use an alternative form of payment, such as a competitor’s credit card or cash, in order to reduce expenses.
Merchants have argued that American Express’ NDPs hinder competition among credit card companies over swipe fees. According to the U.S. Department of Justice (DOJ), swipe fees generate over $50 billion per year for credit card companies.
The DOJ and 17 state attorneys general filed a lawsuit in 2010 claiming that American Express was in violation of federal antitrust laws due to the NDPs in its merchant agreement. The DOJ stated that “these restrictions obstruct merchants from using competition to try to keep credit card fees from increasing.” Visa and MasterCard were named in similar suits, which they settled in 2011 by agreeing to alter their rules.
In 2015, U.S. District Court Judge Nicholas Garaufis ruled in favor of the DOJ. However, the U.S. Court of Appeals 2nd Circuit in New York overturned the lower court ruling this past Monday, citing that Judge Garaufis’ decision was based largely on the merchants’ perspective, ignoring any possible benefits to the cardholder. The three-judge panel held that the fees were “necessary to maintaining cardholder satisfaction” and that merchants “can choose to not accept Amex cards” if they find that the fees outweigh the benefits.
American Express is satisfied with the court’s decision, stating that its cardholders “will be able to choose how they pay and…will not be discriminated against at the point of sale.”
- American Express EveryDay card removes balance transfer fee – The American Express EveryDay card has removed its balance transfer fee and lengthened the introductory APR on purchases and balance transfers ...
- Chase ups United MileagePlus Explorer card's sign-up bonus to 50,000 miles – The United MileagePlus Explorer card's new promotion, which ends March 15, 2018, lets cardholders earn 50,000 bonus miles after spending $3,000 in the first three months of card membership ...
- Earn up to 30,000 bonus points with JetBlue cards – We break down everything you need to know about the JetBlue and JetBlue Plus cards, including which one offers the most valuable sign-up bonus and the most efficient ways to redeem your points ...