A federal judge ruled Thursday that a longstanding practice by American Express aimed at keeping customers from using other forms of payment violates U.S. antitrust laws.
The fees that American Express charges merchants are routinely higher than those of Visa, MasterCard and other credit card companies. But merchants that accept American Express cards are barred by the company from encouraging customers to pay with the lower-cost cards.
In a 150-page opinion, Judge Nicholas G. Garaufis of the Eastern District of New York wrote that such a practice constitutes “an unlawful restraint on trade.”
The ruling was another setback in what is proving to be a bad month for American Express. Last week it announced that its partnerships with JetBlue and Costco would be ending. AmEx had been the only card Costco had accepted beyond debit cards.
American Express stock has suffered, and shares slipped again Thursday after theannouncement.
AmEx released a statement saying it was “disappointed” with the ruling and would appeal. The company said the disputed rules for merchants protect AmEx cardholders “from anti-consumer practices, including at the checkout counter, such as being told to pay with another card.
Eliminating these protections would inhibit consumers’ choice to pay with their preferred payment method and allow merchants who have agreed to honor our cards to then discriminate against them when our card members choose to pay with American Express.”
Credit card fees are largely hidden from consumers, but they are incorporated into the prices of many goods and services. Jeffrey Shinder, an antitrust lawyer who represented three retailers — Ikea, Sears and Crate & Barrel — that testified against AmEx in the case, predicted that the decision would give merchants greater clout to negotiate more favorable agreements with AmEx, including cheaper fees.
“All consumers will benefit from that,” Shinder said.