AmEx Scores a Win on Card Policy -- WSJ
September 27 2016 - 3:02AM
Dow Jones News
By Robin Sidel and Christopher M. Matthews
A federal appeals court Monday tossed an antitrust judgment
against American Express Co., ruling the credit-card company can
continue barring merchants from steering customers to cards with
lower fees.
The decision reversed a lower court ruling that determined AmEx
violated antitrust rules by prohibiting merchants who accept its
cards from encouraging use of other cheaper cards from Visa Inc.
and MasterCard Inc.
The ruling Monday by the Second U.S. Circuit Court of Appeals
means business owners who accept American Express cards won't be
able to ask customers to use a different card, even though such a
move could save them money.
The decision represents a victory for longtime AmEx Chief
Executive Kenneth Chenault, a Harvard-trained lawyer who refused to
settle the suit brought by the Justice Department in 2010.
A spokesman for the Justice Department, which could appeal the
ruling, declined to comment.
Mr. Chenault testified in the case, which went to trial in
Brooklyn, N.Y., in 2014. U.S. District Judge Nicholas Garaufis
sided with the government, ruling that merchants should be able to
offer discounts to shoppers for using cards from AmEx
competitors.
But the appeals court said in its 66-page ruling that the
Justice Department hadn't proven that AmEx's rules hurt merchants
and cardholders. It added that merchants who find that AmEx's fees
outweigh the benefits can simply choose not to accept the
cards.
After the ruling, Mr. Chenault wrote to employees that "we are
excited about the clear and unmistakable message that the appellate
court sent today, and we stand ready to continue the fight if need
be."
If the government doesn't appeal, the decision would put an end
to the six-year-old case at a time when AmEx has been struggling
with a revenue slowdown and ferocious competition for affluent
spenders.
Merchants have long complained that they pay higher fees each
time a customer uses an AmEx card versus a card branded with the
Visa or MasterCard logo. AmEx uses the fees that it charges to
merchants to fund its rewards programs and provide other perks to
its cardholders.
AmEx executives were hopeful that the appeals court might
overturn its decision when it ruled late last year that AmEx could
continue enforcing its prohibition on steering to cheaper cards
while the case was under appeal. Still, the reversal wasn't a sure
thing and the timing for a decision wasn't known.
"Cardholder insistence is exactly what makes it worthwhile for
merchants to accept AmEx cards -- and thus cardholder insistence is
exactly what makes it worthwhile for merchants to pay the
relatively high fees that AmEx charges," the ruling said.
The court went on to say that "AmEx has a legitimate interest in
seeing that cardholders who take advantage of amenities offered to
AmEx cardholders simply by virtue of owning the card aren't enticed
to use their Visa or MasterCard by card-connected discounts from
merchants."
AmEx had said in financial filings that a loss of the case could
result in a material adverse effect on its business.
Monday, AmEx said in a statement that "consumers will be able to
choose how they pay and our Card Members will not be discriminated
against."
Write to Robin Sidel at robin.sidel@wsj.com and Christopher M.
Matthews at christopher.matthews@wsj.com
(END) Dow Jones Newswires
September 27, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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