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Retailers Accuse AmEx of Antitrust Breach as Battle Over Debit Card Cap Heats Up
Friday, March 25, 2011

Retailers in a long-running lawsuit against American Express Co. over charge card swipe fees are now accusing the card giant of violating antitrust law to keep them from suing as a class.

American Express representatives were ordered to obtain “collective action waivers” from merchants as a condition of doing business with the company, according to a complaint filed Wednesday in U.S. District Court in New York. The waivers were designed by AmEx “with the specific intention of immunizing itself against liability that it might otherwise incur under the antitrust laws in connection with the rules it imposes upon merchants,” the lawsuit says.

A class action, filed by retailers more than six years ago, accuses the company of forcing merchants to accept all AmEx credit and debit cards as a cost of doing business and seeks to free the merchants to “steer” customers to credit cards with the lowest interchange fees. That would likely mean discounts for customers who pay for purchases with lower-fee credit and debit cards.

AmEx charges merchants about 2.5 percent of the cost of any transaction, the highest interchange fee in the industry.

In a settlement with the Department of Justice last October, Visa and MasterCard agreed to free retailers from similar steering restrictions. AmEx, which was also the subject of a DOJ investigation, vowed to fight on.

Meanwhile, a broader battle over interchange fees, which the Center for Public Integrity first wrote about last September, has gained momentum as banks of all sizes lobby to convince Congress to drop or delay a provision of the Dodd-Frank financial overhaul law that would prohibit big banks from charging merchants more than 12 cents to process each debit card transaction. Banks now charge an average 44 cents, and the Federal Reserve’s proposed cap would cost them billions of dollars.

Small banks, which do not have to abide by the new regulation, say that they won’t be able to compete with the big banks unless they also slash their fees. And big banks insist that 12 cents does not cover what it costs them to process a debit card transaction.

Card companies and their network banks reaped more than $35 billion from merchant fees in 2009 alone.

A bipartisan bill was introduced earlier this month in the U.S. Senate, where Democrats hold a slim majority, to delay a debit card fee cap for two years. The legislation is backed by three Democrats — Jon Tester of Montana, Ben Nelson of Nebraska, and Tom Carper of Delaware — but it remains to be seen whether the legislation can muster the 60 votes needed to defeat any filibuster threats.

Gary Friedman, a New York lawyer who represents the small merchants in the class action against AmEx, said that the card company must drop its restriction on retailers offering discounts to customers who use other credit or debit cards. Otherwise, the government deal with Visa and MasterCard doesn’t mean much. Any merchant that accepts AmEx would be violating that company’s policy.

But after six years, the parties to the lawsuit are still fighting over whether the merchants can sue as a class, or whether, as their contracts dictate, they must arbitrate individually with the company.

The U.S. Court of Appeals for the Second Circuit recently ruled that AmEx could not force merchants to resolve lawsuits with the company individually. The next stop for the case is likely the U.S. Supreme Court.

AmEx did not respond to a Center request for comment. 

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