San Francisco Sues American Express for Excessive Card Fees

  • `The party is over' for the company, city attorney says
  • Company charges higher fees than competitors, lawyer says

San Francisco sued American Express Co. for allegedly stifling competition with excessive fees, seeking billions of dollars in restitution to merchants.

“The party is over for American Express,”  City Attorney Dennis Herrera said Thursday in a statement.

“American Express for years has exacted a 3 percent fee on each charge card transaction -- well in excess of fees charged such competitors as Visa and MasterCard,” and Amex “strictly prohibited its participating merchants from taking any step to encourage consumers’ use of less costly payment methods, including cash.” according to Herrera.

“We don’t believe the suit has merit” and will fight it, Marina Norville, a spokeswoman for American Express, said Thursday by e-mail.

Herrera said in his complaint that California merchants account for about $2.25 billion of the $15 billion paid in swipe fees to American Express each year.

‘Affluent Cardholders’

The San Francisco city attorney said in his statement that American Express’s restraints on merchants have “forced all consumers to subsidize the high fees and generous rewards American Express continues to lavish on its generally affluent cardholders.”

In an antitrust case brought by the U.S. government, American Express was ordered in April to drop many rules that prohibit merchants from asking customers to use less-expensive credit cards. The company was also told by a federal judge in Brooklyn, New York, not to bar businesses from offering discounts or other incentives to steer customers to other cards. American Express is appealing the ruling.

Herrera, noting that the federal case didn’t include monetary damages, said he’s seeking a $2,500 penalty for each American Express swipe fee transaction over the last four years at about 1 million businesses statewide that accept the card. Citing California’s unfair competition law, he’s also demanding restitution for overcharges.

American Express rose 0.7 percent to $72.68 at 2:01 p.m. in New York. The shares dropped 22 percent this year through Wednesday, the third-worst performance in the Dow Jones Industrial Average.

In a separate Brooklyn case, the company and merchants fighting rules on credit-card fees told a federal judge in October they were resuming settlement talks. The judge in the case threw out an earlier accord after learning that the merchants’ lead attorney had shared confidential information with another lawyer.

The new case, filed earlier this month, is People of the State of California v. American Express Co., 15-548854, California Superior Court (San Francisco).

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