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Court approves credit card steering settlement

US court approves government's card settlement with MasterCard, Visa; Amex still fighting


Eileen Aj Connelly, AP Business Writer, On Wednesday July 20, 2011, 5:01 pm EDT

NEW YORK (AP) -- A federal judge on Wednesday approved a settlement between the Justice Department and MasterCard and Visa that requires the card processing networks to allow retailers to offer discounts or rebates to customers for using a particular kind of card.

American Express Co. has refused to settle with the government, vowing to wage a multiyear fight on the grounds that the deal would promote steering customers from one payment network to another without enhancing competition.

The suit, filed Oct. 4 in U.S. District Court in Brooklyn, N.Y., involved the department and various state attorneys general, who sued all three companies on the grounds they were attempting to avoid competition. On the same day, the Justice Department filed the settlement reached with Visa Inc. and MasterCard Inc.

As part of the deal, the nation's two largest processing networks agreed that the contracts they sign with retailers will not prohibit stores from offering customer discounts or rebates for using a specific kind of credit card, like a rewards card. The fees that the networks and banks charge retailers for handling purchases made with rewards, cash-back cards and high-end cards with gold, platinum or black designations are often higher than the fees for simpler cards with no rewards. It also says merchants may inform customers about their costs for handling different types of cards.

In approving the settlement, U.S. District Court Judge Nicholas Garaufis wrote the deal generated just six public comments, and none objected. One consumer advocate expressed concern about potential discounts becoming, in effect, surcharges for using more expensive cards.

Approving the settlement allows the Justice Department to focus on the remaining issues with American Express, he wrote.

The lawsuit maintained the networks made it hard for merchants to promote the use of competing cards with lower fees. Joining the lawsuit were state attorneys general from Arizona, Connecticut, Idaho, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah and Vermont.

A MasterCard spokesman said in a statement the terms of the settlement are consistent with company practice to allow merchants to offer a discount for cash and other forms of payment, including competing card brands."

Visa and American Express did not immediately respond to requests for comment.

In October, Amex vehemently opposed the settlement, which it said would "interfere with consumer choice at the check-out counter by steering American Express card members to another payment network." At the time the New York-based company, whose card holders tend to be more affluent and spend more than other card users, said that its agreements with merchants protect those customers.

American Express fees tend to be higher than fees for other card networks.

"We have no intention of settling the case," CEO Kenneth Chenault said in October.

The company said when retailers agree to accept Amex, they promise not to push them to use other cards at checkout.

The court has laid out a schedule for conferences and discovery in the case, setting Sept. 2, 2012, as the deadline for discovery should be completed. No trial date has been set.

MasterCard shares slid $3.12, or 1 percent, to end Wednesday's session at $308.27, while Visa shares fell 56 cents to $88.65. American Express shares closed up 29 cents at $52.10. The company is scheduled to report its second-quarter financial results after the market closes.