American Express Merchant Fee Accord Wins Court Approval

American Express Co. 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. and MasterCard Inc.

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 are less costly for merchants, by adding surcharges to credit card transactions.

The accord “unlocks the value” of the earlier settlement with Visa and MasterCard, lawyers for businesses that accept American Express cards said in a Dec. 20 court filing. While the Visa and MasterCard accord allowed merchants to charge customers more for using credit cards, American Express rules forbid those practices unless all cards are treated equally, according to lawyers for the plaintiffs.

“What we did is a compromise, a bargain, a realistic settlement,” Gary B. Friedman, a lawyer for plaintiffs, said after the hearing today. The plaintiffs are seeking to represent a class of roughly 4 million merchants in the U.S. that accept American Express cards.

Retailers have long accused the world’s three-largest payment networks of charging unfair fees for processing payments from customers. Those fees are often used to subsidize travel and other rewards programs for cardholders, plaintiffs in the American Express case said in a March 2011 complaint accusing the New York-based company of antitrust violations.

U.S. Merchants

In their settlement with U.S. merchants over allegations of fixing fees, Foster City, California-based Visa and Purchase, New York-based MasterCard agreed to pay $5.7 billion in damages. The American Express accord doesn’t provide for damages payments.

Fifteen grocery and drug store chains including CVS Caremark Corp., Kroger Co. and Walgreen Co. do not want to be a part of the settlement and are seeking to continue their cases against American Express. The retailers objected to approval of the settlement, contending that provisions in the agreement might prevent them from pursuing litigation.

A lawyer for the grocery and drug retailers, Richard Alan Arnold, said in a Jan. 24 letter filed with the court that American Express was trying to “gut” their cases, in which they are seeking an order granting them broader freedom to use surcharges or other mechanisms to encourage customers to use cheaper payment methods.

“I think that’s something we can address down the road,” Garaufis said during the hearing today. He said the agreement meets the “low standard for preliminary approval.”

Antitrust Lawsuit

The U.S. Department of Justice is also moving forward with a civil antitrust lawsuit against American Express over its fee practices. Garaufis said that separate trials will be held for the government’s case and for the cases brought by the group of grocery and drug retailers. The government trial is scheduled to begin June 16.

In its case, the Justice Department also seeks an order barring American Express from imposing rules against surcharging or other means of encouraging consumers to use other cards.

American Express’s settlement with merchants followed a contentious court approval process for the Visa-MasterCard accord in which dozens of large retailers, including Wal-Mart Stores Inc. and Amazon.com Inc., alleged the deal provided too much leeway for the card firms to raise rates in the future.

The American Express settlement allows the card company to walk away if certain objections are raised, if changes are made to the deal, or if the Visa and MasterCard settlement is modified after appeals. Wal-Mart, Amazon and other retailers opposed to the Visa and MasterCard settlement have appealed final approval, which was issued on Dec. 13.

Visa-MasterCard

American Express also appealed the Visa and MasterCard settlement approval over its treatment as a merchant in that case. American Express became part of the settlement because it accepts some Visa and MasterCard payments.

After CVS, Kroger and the other drug and grocery retailers raised concerns about the American Express settlement, the card company filed a letter with the court Jan. 31 threatening to back out if the objections were not overruled and the deal given preliminary approval by Feb. 13.

Allowing further consideration of the retailers’ claims would “destroy the essence of the settlement agreement and result in its termination,” the card company’s lawyer, Philip C. Korologos, wrote.

The American Express settlement was announced in December and would resolve two lawsuits filed on behalf of merchants.

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).

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE