AmEx Accord With Merchants Allows Different Debit Charges

American Express Co. (AXP) settled two lawsuits by agreeing to let merchants charge customers less if they use a competing debit card instead of an AmEx credit card.

The change, outlined yesterday in an AmEx statement, ends a company policy that compelled merchants to charge the same amount no matter what kind of card was used. Retailers now will be allowed to put surcharges on credit cards even if they don’t charge extra for debit cards, which AmEx doesn’t offer. The plaintiffs included Marcus Corp., the Milwaukee-based operator of hotels and movie theaters.

Merchants have pressed for the ability to tack on extra fees and steer customers to other forms of payment that cost retailers less. Visa Inc. (V) and MasterCard Inc. (MA) made similar concessions in a 2012 settlement with the industry and a 2010 accord with the U.S. Justice Department. The result could be higher costs for AmEx card users.

“If the merchants can implement something that makes sense for them, they will,” Jason Arnold, an analyst at RBC Capital Markets, said in an interview. Retailers may offer discounts for cash and boost surcharges to cover AmEx’s transaction fees, which average about 2.5 percent.

Any added levy for credit cards or prepaid cards must apply uniformly regardless of the brand, and merchants still can’t steer customers to competing products, according to New York-based AmEx, the biggest credit-card issuer by purchases.

Legal Costs

AmEx agreed to pay as much as $75 million in attorney fees for the plaintiffs and as much as $4 million for notifying merchants.

“Resolving these lawsuits will allow us to stay focused on helping merchants build their business and strengthen their customer relationships,” Tim Heine, managing counsel at AmEx, said in the statement.

The Merchants Payments Coalition, which represents retailers, called the agreement a “mistake that will hurt merchants and their customers,” according to Mallory Duncan, the MPC chairman and general counsel at the National Retail Federation. “Swipe fees will continue to be the fastest-growing expense for merchants” and consumers will still pay “overinflated fees without even knowing it.”

AmEx shares rose 0.5 percent to $86.41 at the close of trading yesterday in New York. The stock increased 50 percent this year, more than double the Dow Jones Industrial Average.

The company said in the statement that it would seek court approval for the agreement.

Court Approval

Lawyers for The Marcus Corp. notified the court of the settlement agreement in a filing yesterday. The attorneys asked that the Manhattan court grant preliminary approval and transfer the case to federal court in Brooklyn, New York, where another consolidated case against American Express is pending, for further proceedings.

The settlement must receive both preliminary and final court approval.

The settlement agreement, filed with the Manhattan court, would allow American Express to walk away from the deal if merchants representing at least 20 percent of the American Express charge volume in 2012 object to it, or if the Justice Department or any state attorney general raises objections.

American Express can also back out if the settlement doesn’t remain in its current form either after final approval or an appeal, or if the 2012 settlement of the Visa and MasterCard case is changed after appeals.

Core Relief

“The core relief is strikingly simple: American Express’s rules will be altered to permit merchants to impose a separate fee, or surcharge, on credit and charge card transactions” to steer consumers to less expensive debit cards, lawyers for Marcus said in a filing yesterday in Manhattan federal court.

Noting that the card firms generally only allow surcharges if cards of all brands can be treated equally, the lawyers said that the American Express settlement “unlocks the value of the rules changes that merchants have wrung” from other networks.

“While this litigation was directed at American Express, the relief contained in this settlement will empower merchants to surcharge Visa, MasterCard and Discover credit card transactions,” the lawyers said.

The cases are American Express Anti-Steering Rules Antitrust Litigation, 1:11-md-2221, U.S. District Court, Eastern District of New York (Brooklyn) and Marcus Corp. (MCS) v. American Express Co., 1:04-cv-5432, U.S. District Court, Southern District of New York (Manhattan)

To contact the reporters on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net; Christie Smythe in Brooklyn at csmythe1@bloomberg.net

To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

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