American Express Sued by Antitrust Division for Unfair Merchant Rules

American Express Sued by Antitrust Division for Unfair Merchant RulesThe Justice Department filed an antitrust lawsuit against American Express (AXP) Monday, alleging that the financial institution has been engaging in anti-competitive practices. In the same statement, the Justice Department said it reached a proposed settlement with Visa (V) and MasterCard (MA) over similar charges.

The credit card companies were charged with enforcing rules that prevented merchants from offering consumer discounts, rewards or information about card costs, the Justice Department said in statement. The companies also boost the cost of business by prohibiting merchants from encouraging customers to use credit cards that cost them less to accept, said the Justice Department, which was joined in the complaint by seven states, including Texas, Ohio and Maryland.

At issue is the dominance of Visa, MasterCard and Amex among U.S. credit card companies, which pull in about $35 billion a year in so-called "swipe fees," which are charged to U.S. merchants each time one of their customers uses a credit card. Amex's swipe fees are the industry's highest, according to the Justice Department.

"These restrictive rules restrain competition among credit card networks for merchant acceptance and distort the competitive process," said Christine Varney, assistant attorney general in charge of the Justice Department's antitrust division, in the statement.

American Express Says It Won't Settle

Under the proposed settlement with Visa and MasterCard, merchants will be allowed to offer discounts to customers who use credit cards with lower swipe fees, disclose certain credit card preferences and inform customers about the different swipe fees, according to the Justice Department.

American Express said in a statement Monday that it has no intention of settling. The claim "represents an extraordinary retreat by the antitrust division," said Amex CEO Kenneth I. Chenault. "Instead of promoting competition, it now seeks to promote regulation that would ultimately limit competition."

American Express processed $420 billion in consumer purchases last year, while MasterCard and Visa processed $477 billion and $764 billion respectively, according to the Justice Department.

American Express shares fell 5.1% to $39.65 at about 3 p.m. Monday. MasterCard shares were down less than 1% to $222.92, while Visa shares were little-changed at $73.58.

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