April 15, 2015

Antitrust Alert: Proposed Remedies in American Express Case to Decrease Merchant Discount

In U.S. v. American Express, the Eastern District Court of New York found that American Express’ anti-steering rules violated federal antitrust law. With the case now in the remedies phase, merchants, banks and processors are beginning to get a look at rule changes that the DOJ is seeking to address the violation. The rule changes that the DOJ has proposed to the court would enable merchants to influence the payment method a customer chooses to use at the point of sale, with an eye towards steering customers towards lower-cost cards. The DOJ argues that this will give merchants and the processors who represent them leverage to obtain concessions from American Express in the form of smaller merchant discounts and processing fees. Without the rule change, a merchant’s only option is to not accept Amex cards at all. Similar rule changes would affect Visa and MasterCard.

Under the DOJ’s proposal, a merchant could steer the customer in any number of ways. It could offer the customer a discount off the posted price, a rebate, a freebie such as a gift card, or other monetary or in-kind incentives. For example, hotels could offer free gym access; airlines could offer free checked bags; online merchants could offer free shipping. A merchant could also promote one card or form of payment over another in its customer communications simply by asking its customers to use a particular card. A merchant could tell its customers that it prefers a particular card, put payment brands in order of preference in online drop-down payment menus, or feature a particular card in its signage. Merchants would also be free to present customers with a comparison of their card-acceptance costs. However, while a merchant could criticize American Express as a form of payment, it could not disparage or mischaracterize Amex cards or do things that would harm the American Express brand. Rules against such activity would stand.

American Express would still be allowed to cut exclusivity deals with merchants or even negotiate strict steering rules, as long as these are side deals with individual merchants and processors and not imposed as part of the American Express standard card-acceptance agreement. The DOJ proposes to monitor American Express to guard against any attempt to terminate merchants that are unwilling to do such deals.

American Express has taken issue with many elements of the DOJ’s proposal and has said it will appeal the court’s ruling regardless of the final remedy. But when the dust settles, it is likely that the payments industry will be facing a changed landscape.

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