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Attorney declares AmEx pricing illegal

Aspate of litigious activities against payment card pricing models underscores deepening hostilities among regulatory agencies, retailers and payment card brands. In 2014, the United States Department of Justice and 17 state attorneys general successfully challenged American Express Co.’s pricing and acceptance policies. The lawsuit accused AmEx of setting prices too high and prohibiting enrolled merchants from encouraging AmEx cardholders to use other, less expensive forms of payment at the POS.

A judge in the Eastern District Court of New York ruled in favor of the plaintiffs in February 2015, following a seven-week trial. Plaintiffs included Arizona, Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah and Vermont. U.S. Attorney General Eric Holder praised the decision, setting the stage for further state-level actions against the company’s alleged illegal fee structure.

“By recognizing that American Express’s rules harm competition, the court vindicates the promise of robust marketplaces that is enshrined in our antitrust laws,” Holder stated. “With this achievement, we are sending an unambiguous message that the Department of Justice is prepared to litigate any case, no matter how complex, in its pursuit of justice and protection for the American people.”

Party over or just begun?

In response to the court’s unambiguous message, San Francisco City Attorney Dennis Herrera filed a statewide action Nov. 6, 2015. People of the State of California, ex rel. Dennis Herrera v. American Express Company et al., alleges that AmEx fees violate California’s Unfair Competition Law. It seeks financial remuneration of up to $2,500 per transaction to merchants who chose to accept AmEx-branded payment card products at their establishments, despite the company’s readily available published fee and pricing policies.

“The party is over for American Express, and the bill is coming due in California,” Herrera said in a well-publicized statement, which critics suggested is inflammatory and unbefitting a public official. “The federal court ruling earlier this year merely confirms what millions of retailers, economists and U.S. Justice Department officials have known for years: American Express has rigged the game. They shook down merchants, stifled competition, and shifted costs for their extravagant member perks to even cash-paying consumers. It’s unfair, it’s illegal, and—under state law—it warrants tough penalties and restitution for California’s merchants.”

Payments analysts have also questioned Herrera’s motives for the lawsuit, suggesting that his tone belies a certain degree of opportunism in what may likely be a victimless crime. “American Express has consistently positioned itself as an optional, premium brand,” said David True, a former AmEx employee and current Managing Director at Broadly Curious Advisors, a payment consultancy based in New York City. “I don’t understand why they’re beating up on AmEx; there has never been a case of forcing merchants to accept The Card; card acceptance doesn’t hurt smaller merchants, and large retailers have the option to negotiate their rates.”

Noblesse oblige

In the previous, precedent-setting case against AmEx, plaintiffs took issue with “anti-steering rules” that effectively block merchants from using competition to keep credit card interchange costs down. Separate rulings against Visa Inc. and MasterCard Worldwide in 2014 prohibit the card networks from setting rules and practices that discourage competition, while allowing merchants to freely “steer” transactions to other networks in an effort to reduce transaction costs.

AmEx had little to say about the San Francisco City Attorney’s actions, other than to disclose plans to defend vigorously against the allegations and its belief that the suit has no merit, according to a company spokesman. Supporters expect the card brand to rise to the occasion and conduct itself with dignity throughout the proceedings. Additional details related to the case can be found on the San Francisco City Attorney’s website at .