- The Washington Times - Monday, October 4, 2010

A two-year Justice Department investigation has ended in a settlement with two of the largest U.S. credit card companies and, according to Attorney General Eric H. Holder Jr., a bonus for consumers who might find a little extra money in their pockets.

But while Visa and MasterCard reached a deal in the long-simmering battle over how the credit card companies restrict merchants’ ability to offer discounts to consumers, American Express vowed to fight a government antitrust lawsuit filed Monday in U.S. District Court in New York.

“Restrictive rules prevent price competition among credit card networks, which means merchants face increased business costs and consumers pay higher prices,” Mr. Holder said at a news conference. “With today’s lawsuit, we are sending a clear message: We will not tolerate anti-competitive practices.

“We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anti-competitive rules, we will accomplish that,” he said.

The antitrust lawsuit challenged rules established by Visa, MasterCard and American Express to prevent merchants from offering consumer incentives, including cost-saving options such as discounts or rewards, for using less-expensive forms of payment or one using one brand of credit card over another.

The three companies control more than 90 percent of the U.S. credit card market, according to the site creditcard.com.

The settlement would require Visa and MasterCard to allow merchants to give discounts for cash transactions, for using other, cheaper credit card brands, or for using less-prestigious levels of their own cards.

MasterCard called the proposed settlement a “modification of a rule … which is precisely what we already permit.” A spokesman for Visa described the settlement as “amicable” and pledged to make “reasonable” changes to its policies.

A number of consumer groups on Monday applauded the antitrust lawsuit, saying it was overdue.

“The credit-card networks and their banks have gouged consumers for years,” said Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group. “After all, everyone, including cash customers, pays more at the store and more at the pump due to their non-negotiable fees and unfair rules imposed on merchants.”

Pam Banks, policy counsel for the Consumers Union, said the case will “hopefully open the market to greater competition and greater consumer benefits.”

“We welcome DOJ’s continued attention to making sure consumers are not exploited,” she said.

But in a terse public statement, American Express denied wrongdoing, and Chief Executive Officer Kenneth I. Chenault said the company has “no intention of settling the case.”

“We will defend the rights of our card members at the point of sale and our own ability to negotiate freely with merchants,” he said.

American Express spokesman Michael O’Neill said the company will contest the lawsuit and is hiring noted defense lawyer David Boies to handle its defense. The company has described the Justice Department lawsuit as “a significant retreat” from previous department efforts to promote competition in the payments industry.

Mr. Boies has handled several celebrated cases, including the defense of IBM in an antitrust case brought by Justice Department and a case brought by Justice against Microsoft Corp. He also has represented New York Yankees owner George Steinbrenner in a lawsuit against Major League Baseball; defended CBS in a lawsuit brought by Gen. William Westmoreland; and represented Vice President Al Gore in the lawsuits over the 2000 U.S. presidential election.

He negotiated on behalf of American Express in two of the highest civil antitrust settlements ever for an individual company: $2.25 billion from Visa and $1.8 billion from MasterCard.

American Express cards account for about 24 percent of the total dollar volume of credit card transactions in the United States, the highest of any card issuer.

Sen. Patrick J. Leahy, Vermont Democrat and chairman of the Senate Judiciary Committee, said the agreement with Visa and MasterCard was intended to prevent payment processors from barring a merchant from offering a discount, product or enhanced service to a consumer for using one brand or type of credit card over another.

“I applaud the Justice Department for using the antitrust laws to protect competition in a way that allows retailers to compete and consumers to benefit from more choices and lower prices,” he said.

Mr. Holder said the credit card companies had 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.”

He noted that every time a consumer uses a credit card for a purchase, the merchant pays a fee that is passed on to consumers through higher prices.

In 2009 alone, he said, the three credit card companies and their affiliate banks collected more than $35 billion in fees.

If the proposed settlement with Visa and MasterCard is approved by a federal judge, Mr. Holder said, companies and retailers will be able to provide their customers with more options and cost-saving incentives. He said that as a result, more consumers will be able to receive discounts and, ultimately, enjoy the benefits of lower prices.

“If you use a preferred, lower-cost credit card, an airline could offer you more miles, or a merchant could provide you with a rebate,” he said. “Merchants will also be able to inform consumers which cards will lower business costs the most, allowing these savings to be passed on to consumers.

“Today’s settlement will enable some Visa and MasterCard customers to receive the benefits of competition right away,” he said. “But while it is an important step forward, as long as one credit-card company continues to impose anti-competitive rules, there is more work to do.”

Mr. Holder said the department sought to ensure that every consumer “has access to more choices and lower prices, and that simply will not happen unless, and until, American Express’s restrictive rules are changed.” He said because of American Express‘ current rules, some consumers will continue to pay higher prices.

He said American Express maintains the industry’s most restrictive merchant rules, has the highest fees of any credit card company and refuses to give merchants the ability to offer rewards to consumers who use a less-expensive card.

“That is unacceptable, so we will continue to pursue litigation against American Express until we ensure a fair market for every consumer,” he said. “Because American Express has refused to change its rules, consumers are being held hostage from receiving the expanded choices and lower prices they deserve under our settlement with Visa and MasterCard.

“We cannot allow this to stand, and we will not,” he said.

The settlements with Visa and MasterCard were filed in U.S. District Court in Brooklyn, where they still have to be approved by the judge.