American Express Wins Appeal in Anti-Steering Case
American Express scored a major legal victory on Sept. 26 when a federal appeals court ruled that Amex had the right to restrict retailers. Specifically, Amex had wanted to prevent Amex-accepting merchants from offering shoppers financial incentives to use other card brands.
In its ruling, the U.S Court of Appeals for the Second Circuit New York tossed out a lower court’s decision that said language barring such “steering” in American Express’ contracts with its merchant clients violated anti-trust laws.
In reversing the decision, the appellate court said the plaintiffs failed to prove that Amex’s anti-steering rules caused net harm to its customers as a whole—both cardholders and merchants. The lower court erroneously only considered the interests of merchants and failed to consider the interest of cardholders, who benefit from rewards and other perks funded by merchant fees, the appellate court said.
“Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction,” the court wrote in its decision. Furthermore, merchants are free to decide not to accept Amex as a payment option, the court noted. “If a particular merchant finds that the cost of Amex fees outweighs the benefit it gains by accepting Amex card, then the merchant can choose not to accept Amex cards. Indeed, many merchants have already made and continue to make this choice.”
The appellate court’s ruling is the latest step in the long-running case, which dates back to 2010, when the U.S. Dept. of Justice filed an antitrust lawsuit against American Express, Visa and Mastercard over the networks’ anti-steering rules. Visa and Mastercard quickly settled, agreeing to remove such rules from its contacts with merchants. However, American Express opted to challenge the suit, claiming anti-steering provisions promote competition by enabling its cards to compete with the other networks, which together have more than 1 billion cards in circulation in the U.S., compared with American Express’ 55 million.
In November 2015—nine months after the lower court’s ruling against American Express—San Francisco’s City Attorney filed a separate civil lawsuit against the network, seeking billions in penalties and damages over the anti-steering rules, which the suit said violated California’s Unfair Competition Law.