American Express can bar merchants from steering customers towards rivals that charge lower fees
27 Sep 2016
American Express Co can prohibit merchants from steering customers to credit cards with lower transaction fees, a federal appeals court has ruled. The ruling would hurt the efforts of the industry to reduce annual card fees that run around $50 billion, according to commentators.
The Manhattan appeals court decision clarifies AmEx's relationship with merchants. A federal judge had found the credit card company's policy ran counter to antitrust law, but according to the federal court the retailers were not obliged to accept AmEx cards and pay its fees. The case was brought by the US justice department in 2010.
"Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction,'' circuit judge Richard Wesley said in a written opinion.
The news helped cut the decline in the lender's share which were down 0.7 per cent to $63.42 in New York after dropping as much as 1.6 per cent earlier.
American Express shares had plummeted 16 per cent in the past 12 months, the worst performance in the Dow Jones Industrial Average.
''Today's ruling is a positive for AmEx as it seems that investors were concerned about the negative impact of potential steering and the ability for the networks to create an environment where merchants would want to steer more frequently,'' Sanjay Sakhrani, a Keefe, Bruyette & Woods analyst, said in a note to clients.
According to commentators, the lower-court ruling was puzzling as it ignored Amex's minority share of the credit-card market - 26 per cent to Visa's 45 per cent as also evidence that a third of the nation's 9 million retailers did not accept Amex at all and apparently had not suffered any harm as a result.
They added that the trial court's mistake, however was defining the ''relevant market'' a key first step to proving an antitrust case, as the market for ''network services'' merchants used to process retail transactions. The market also t included consumers according to the appeals court, who very well might gain better rewards and lower pricing as a result of higher merchant fees.