American Express claims US lawsuit would allow merchants to discriminate against its customers

By Eileen Aj Connelly, AP
Monday, October 4, 2010

Amex: US suit could OK customer discrimination

NEW YORK — American Express Co. said it is willing to wage a multiyear fight against a federal lawsuit alleging the card company uses anticompetitive practices, claiming it aims to prevent merchants from using “bait and switch” tactics with its customers.

“We have no intention of settling this case,” said Ed Gilligan, vice chairman of the New York company during a conference call held to respond to a suit filed Monday. “The Justice Department’s proposed remedy would promote steering customers from one payment network to another, and that is a one-sided approach that will do nothing to enhance competition.”

The Justice Department earlier Monday sued American Express, along with MasterCard Inc. and Visa Inc., charging they use anticompetitive rules when they prohibit merchants from offering customers discounts or rebates for using one particular type of card.

At the same time, the Justice Department filed a settlement in the case with MasterCard and Visa. The two companies agreed not to prohibit such discounts or rebates.

American Express maintained that its agreements with merchants protect its cardholders, who tend to be more affluent and spend more than other card users. Also, the company said, many of its merchant contracts allow promotions.

“In effect, the government is arguing that we cannot freely negotiate with our merchants about how they treat our card members at the point of sale,” said American Express General Counsel Louise Parent. She said the contracts are “intended to shield consumers from pressure by merchants not to use the cards of their choice.”

The case rests on the fact that each credit card transaction carries with it certain fees that are charged to merchants who accept the cards. American Express fees tend to be slightly higher than those charged for MasterCard and Visa acceptance, but American Express cardholders also tend to have at least one of the rival cards.

American Express shares closed Monday down $2.73, or 6.5 percent, at $39.05, its lowest close since June.

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