Under the proposed settlement, Visa and MasterCard would allow merchants to offer discounts, rebates or other incentives to get customers to use cards with lower merchant fees, such as “plain-vanilla” cards with no rewards or points programs.
The government hopes to implement this policy industry-wide. However, American Express is refusing to cooperate, which has lead the DoJ to file a civil antitrust suit against the company. Here's how business analysts say the suit could affect consumers, retailers and American Express:
Retailers Are Pleased with the Suit, writes J. Jennings Moss at Portfolio: "Retailers routinely grumble about the amount of money they lose when customers use credit cards—about 2 percent of the purchase price. As part of the recently enacted financial overhaul law passed by Congress, retailers can offer discounts to people paying with cash or a debit card. Because of the agreement with Visa and Mastercard, retailers that accept only those cards can begin to give the discount. But if they also accept American Express, those discounts will have to wait until the lawsuit is settled."
- Consumers Have Much to Gain From This, writes Mike McDermott at Seeking Alpha: "What’s at stake? The Dept of Justice claims that the card processors’ practice of preventing merchants to use cheaper forms of cards equates to anti-competitive practices (Reuters). Essentially, merchants who accept Visa, Mastercard or American Express as means of payment are required to follow the card processors’ rules which state the merchants cannot offer discounts or incentives to customers for using certain forms of payment which are more cost effective for the merchant."
- This Is a Potential Nightmare for American Express, writes Ron Lieber at The New York Times: "American Express is also a target of the suit, but it refused to settle. Why? Because its merchant fees are even higher than those of Visa and MasterCard, and stores would like to find a way to encourage people not to use American Express cards. (Sure, stores could stop accepting American Express cards altogether, but that isn’t practical for most larger retailers since so many people have them.) American Express’s biggest nightmare is waking up one day to a world where any store can post a sign announcing a 4 percent surcharge for use of its cards while surcharges for Visas and MasterCards are 1 to 3 percent. So American Express battles any attempt to disrupt the status quo, even if it wouldn’t lead immediately to surcharges."
- The Current System Punishes Frugal Consumers, writes Daniel Fisher at Forbes: "There’s no question consumers, in the aggregate, pay higher prices because of the infrastructure of the credit system. Right now that cost is largely invisible to them because the merchants pay it by taking a haircut on the gross receipts, and presumably mark up prices to recover at least part of it. But who really loses under this system? The same people who lost when subprime borrowers took out loans they couldn’t repay and defaulted, triggering the credit crisis and ultimately the recession. The frugal, who pay in cash, also suffer a net loss from the existing credit card system. Everybody else gets a benefit, either in the form of instant credit or extra miles at the end of the month."
- It Makes Sense for AmEx to Fight This, writes an analyst from Piper Jaffray: "AXP intends to fight the lawsuit, which we believe is likely without merit as we believe AXP does not have market power, as validated by the DOJ itself a few years ago. Although difficult to predict, we do not believe that the impact in the event of losing would be material for AXP but we agree that the case is worth fighting. The litigation will likely take years. We believe in the value of the AXP franchise and that the sell off was overdone."