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U.S. sues AmEx, Visa, MasterCard, latter two settle…

WANTED SA has been informed that The U.S. Justice Department sued American Express Co, Visa Inc and MasterCard Inc on Monday October 04, 2010, accusing them of violating antitrust laws and citing rules that prevented merchants from encouraging consumers to use cheaper credit cards.

Simultaneously, the Justice Department settled with Visa and MasterCard, which agreed to allow merchants to offer discounts to consumers who use less expensive types of credit or debit cards. The companies said the settlement, subject to court approval, did not involve any payment.

The lawsuit has the potential to cut into a significant source of profits for American Express and threatens to reshape the competitive landscape of the card processing business.

Shares of American Express, which charges merchants more on average for processing credit card transactions than its rivals, closed down 6.5 percent at $39.05.

Consultant Philip J. Philliou, a former executive for American Express and MasterCard, said via email that the lawsuit was "problematic for AmEx.

"If nothing else, it highlights to retailers and consumers the premium that retailers pay to accept AmEx as a form of payment," he wrote.

"This ruling may impact which card a consumer pulls out of their wallet," Philliou added.

American Express said the lawsuit would hurt consumers by limiting their ability to use their AmEx card.

"We have no intention of settling the case," Kenneth Chenault, chairman and chief executive officer of American Express, said in a statement.

American Express executives and lawyers declined repeatedly on a conference call with investors and reporters to quantify the potential impact of losing the lawsuit, or to say how much it would have cost the company in revenue to settle the case.

"I think, with reason, AmEx thinks the negative impact would be material," consultant Eric Grover, who previously worked at Visa, said in an email.


Attorney General Eric Holder said at a press conference on Monday that credit card companies "put merchants and consumers in a no-win situation. Accept our card, pay our fees and don't even think about trying to get a discount."

Merchants pay fees to banks and processing networks like Visa and MasterCard every time a customer pays for something by using a credit or debit card. These so-called interchange fees usually amount to between 1 to 3 percent of each total bill.

American Express, which lends directly to consumers and processes credit card transactions, charges merchants a higher percentage on average. AmEx said on the conference call that merchants get more business from American Express cardholders in exchange for the higher fees because its wealthy customers tend to spend more than the average credit card user.