(DES MOINES, Iowa) Attorney General Tom Miller announced today that, as part of a civil action on behalf of Iowa and six other states, the U.S. Justice Department has filed a federal civil antitrust lawsuit against American Express, and has announced a proposed settlement with Visa and MasterCard. The lawsuit and proposed settlements challenge rules that all three companies have in place that prevent merchants from offering consumers discounts, rewards and information about card costs, ultimately resulting in consumers paying more for their purchases. The lawsuit alleges that the rules increase merchants’ costs of doing business.
“The practices that we allege stifle competition, they cost merchants, and they ultimately cost consumers,” said Iowa Attorney General Tom Miller. .
The proposed settlement with Visa and MasterCard, if approved by the court, would require the two companies to allow merchants to offer discounts, incentives, and information to consumers to encourage the use of payment methods that are less costly.
According to the complaint, filed in U.S. District Court for the Eastern District of New York, American Express, MasterCard and Visa maintain rules that prohibit merchants from encouraging consumers to use lower-cost payment methods when making purchases. For example, the rules prohibit merchants from offering discounts or other incentives to consumers in order to encourage them to pay with credit cards that cost the merchant less to accept.
“By putting an end to what we allege are anticompetitive rules and practices, we hope to improve the bottom line for big and small businesses alike, and the consumers who use credit cards to buy their goods and services,” Miller added. “By bringing in more competition, this should bring about better credit card deals for retailers and better prices for their customers.”
Credit card acceptance costs U.S. merchants approximately $35 billion each year. Those costs are collected from merchants in the form of a “swipe fee” they pay every time a credit card is used. American Express has the highest merchant fees of any credit card network. Merchants pass on these billions of dollars in fees to all their consumers in the form of higher retail prices. By preventing merchants from rewarding consumers when they use less expensive credit cards to make a purchase, American Express, MasterCard and Visa have inhibited merchants’ ability to reduce card acceptance costs, and therefore their retail prices to consumers. The average household pays an estimated $427 in interchange fees.
The proposed settlement requires MasterCard and Visa to allow their merchants to:
- Offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment;
- Express a preference for the use of a particular credit card network, low-cost card within that network or other form of payment;
- Promote a particular credit card network, low-cost card within that network or other form of payment through posted information or other communications to consumers; and
- Communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment.
The proposed settlement allows any merchant that only accepts Visa and MasterCard to take advantage of the relief immediately.
The ongoing litigation against American Express seeks to allow merchants that accept American Express to engage in the same kind of discounting and encouragement that the proposed settlement with MasterCard and Visa allows. Until American Express’s restraints on merchants are lifted, the many merchants that accept American Express, as well as Visa and MasterCard, will not be able to take full advantage of their new options under the proposed settlement, Miller said.
American Express Company, the parent of American Express Travel Related Services Company Inc., is a New York corporation, with its principal place of business in New York City. Cardholders used American Express credit and charge cards for $419.8 billion in purchases in 2009. MasterCard is a Delaware corporation with its principal place of business in Purchase, New York. Cardholders used MasterCard credit and charge cards for $476.9 billion in purchases in 2009. Visa is a Delaware corporation with its principal place of business in San Francisco. Cardholders used Visa credit and charge cards for $764.2 billion in purchases in 2009.
Joining Iowa in its lawsuit are the states of Connecticut, Maryland, Michigan, Missouri, Ohio and Texas. The U.S. Department of Justice is coordinating the legal effort.
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