AmEx Drops After Losing U.S. Antitrust Lawsuit Over SteeringElizabeth Dexheimer and Christie Smythe
American Express Co. fell in New York trading after a judge ruled that the company violated antitrust law with its policy barring merchants from asking customers to use other forms of payment.
AmEx dropped 1.7 percent to $78.40 at 4:10 p.m. Thursday after U.S. District Judge Nicholas Garaufis in Brooklyn issued his decision, which the company said it will appeal. The shares have slid 16 percent this year, the worst performance in the Dow Jones Industrial Average.
The lender failed to show that its so-called non-discrimination provisions, imposed on merchants who agree to accept its card, don’t harm competition, Garaufis said in his ruling.
The U.S. Justice Department victory in its lawsuit against the credit-card company might give merchants more leverage in their efforts to cut the costs, which are largely hidden from consumers. It is the latest in a series of blows to the New York-based firm after its partnerships with Costco Wholesale Corp. and JetBlue Airways Corp. ended.
The lawsuit is “a major risk to the business,” Jason Arnold, an analyst at RBC Capital Markets, said before the ruling was made public. A “a negative outcome remains largely underappreciated by most investors.”
AmEx is “disappointed” with the decision and will appeal, Andrew Johnson, a spokesman for the firm, said in a statement.
“The court’s ruling will not provide any benefit to consumers and will, in fact, harm competition,” Johnson said. “We continue to believe the Department of Justice’s arguments are flawed and believe we should prevail on appeal.”
The U.S. government was joined by 17 states in its 2010 antitrust suit, alleging that AmEx rules preventing merchants from steering customers to cards with lower processing costs violate federal law. The New York-based lender has said it needs the policy to remain competitive and uses the swipe fees it collects to pay for customer rewards and provide services for merchants like fraud-prevention programs.
Visa Inc. and MasterCard Inc., the two biggest U.S. payments networks, settled with the Justice Department in 2010, allowing merchants to reward consumers for paying with lower-cost credit or debit cards. The government’s lawsuit against AmEx went to trial in July following years of private litigation by merchants against the payments networks over the swipe fees, also known as interchange or merchant discount fees.
Credit-card interchange fees, long a sore point with merchants, total about $50 billion a year in the U.S., according to the government.
The case is U.S. v. American Express Co., 1:10-cv-04496, U.S. District Court, Eastern District of New York (Brooklyn).