American Express Co. (AXP) won preliminary court approval of a settlement with U.S. merchants over transaction fees that the retailers say complements a multibillion-dollar accord with Visa Inc. (V) and MasterCard Inc. (MA)
U.S. District Judge Nicholas Garaufis in Brooklyn, New York, made the ruling today and scheduled a Sept. 17 hearing on final approval. The deal allows shops to encourage customers to use debit cards, which cost retailers less to process than credit-card purchases.
The accord “unlocks the value” of the settlement with Visa and MasterCard, lawyers for businesses that accept American Express cards said in a Dec. 20 court filing.
Under that settlement, Visa and MasterCard offered businesses some ability to add surcharges to credit-card transactions as a way to steer customers away from them. Such surcharges could only be used if New York-based American Express permitted the practice as well.
The Visa and MasterCard deal also involved a payment of $5.7 billion in damages to the class of retailers. Damages aren’t part of the American Express settlement.
The American Express accord may result in higher costs for credit-card users. The company compelled merchants to charge all customers the same amount no matter what kind of card they used. Retailers pressed for the ability to tack on extra fees to credit-card purchases to steer customers away from them.
Fees that merchants pay credit-card firms to process payments are often used to subsidize travel and other rewards programs for cardholders, plaintiffs in the American Express case said in a March 2011 complaint, which accused the company of antitrust violations.
“While an affluent shopper who is 200 points shy of a free trip to Hawaii may not balk at a two-dollar surcharge on her check-out ticket, the cash-payer and debit card user will be relieved of the obligation to subsidize that particular junket,” the plaintiffs wrote.
Many large corporations require executives to use American Express to be reimbursed for business expenses, increasing the card company’s leverage, the retailers said.
American Express can walk away if certain objections are raised to the settlement or if there are changes to it.
The cases are American Express Anti-Steering Rules Antitrust Litigation, 11-md-02221, U.S. District Court, Eastern District of New York (Brooklyn) and Marcus Corp. v. American Express Co., 04-cv-05432, U.S. District Court, Southern District of New York (Manhattan).
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