A US federal judge on Thursday ruled against American Express, saying it has violated anti-trust laws by stopping the merchants from asking the customers to use one credit card over another.
US District Court Judge Nicholas Garaufis ruled that the nondisclosure policies of American Express were harming competition as well as preventing the merchants from making attempts to lower the costs on their credit card processing.
The judgment comes as a major blow to the multinational financial service provider, who argued that the policies kept the company in better position against the rival payment networks like MasterCard and Visa, and their bank partners.
While hearing the lawsuit, Garaufis observed that the policies of American Express also kept the consumers completely unaware about the credit cards cost burden coming on their merchants.
The case mainly focuses on the fees that the merchants pay in order to process the transactions, which are largely hidden from customers, linked to the debit and credit cards.
Every time a customer swaps his/her credit or debit card at a merchant, the payment networks as well as the associated banks take a small percentage of the total transaction amount as a charge.
Jeffrey Shinder, an antitrust and payments expert at the law company Constantine Cannon, said, “Everyday, merchants make their vendors compete for their business and, hopefully, drive down prices. That type of competition does not exist at all in the payment industry.”
Shinder represents merchants in a similar class-action case involving American Express.
Other major payment networks MasterCard and Visa also had similar nondisclosure policies as that of American Express, but the companies opted to end those practices following settlement with the Justice Department in the year 2010. On the other hand, American Express denied any such settlement, and the issue went to trial in 2014.