AmEx Faces Deadline to Relax Merchant Rules

     BROOKLYN (CN) – American Express has five days to rewrite its contracts so that merchants can encourage customers to use less-expensive credit or debit cards, a federal judge ruled.
     U.S. District Judge Nicholas Garaufis issued his 20-page edict Thursday afternoon.
     “The written notice shall inform the merchant that it can file a complaint or inquiry with the Department of Justice if the merchant believes it was threatened with termination or terminated for having engaged in steering or because American Express wrongly determined that the merchant was disparaging or mischaracterizing American Express’s brand,” The order states.
     Garaufis said AmEx can no longer enforce its rules banning merchants from offering discounts to those who use different cards, expressing a preference for the use of a different, possibly less-expensive card, promoting a particular card, or telling customers of the costs they incur when a particular card is used.
     AmEx has five days to make “reasonable efforts” to give the notification to its merchants, according to the order.
     The credit card company also must give the Department of Justice quarterly reports regarding merchants whose ability to accept AmEx cards was terminated for any reason.
     Garaufis also gave the DOJ five days to produce names and full contact information of the representatives appointed to receive merchants’ complaints stemming from his order.
     AmEx meanwhile has 30 days to provide notice of any changes to its rules as they relate to how merchants accept, promote or encourage use of cards.
     “For the avoidance of doubt, American Express shall not prohibit, prevent or restrain a merchant from engaging in any of the protected practices,” as described in an earlier permanent injunction, which “disparages, mischaracterization or harms its business or brand.”
     The federal government, several states and a group of business brought the 2010 federal complaint against the credit card company in Brooklyn, claiming that AmEx’s use of “non-discrimination provisions” prevent 3.4 million merchants who take their cards from steering customers to other methods of card payments, which are typically less-expensive.
     After a seven-week bench trial, Garaufis ruled this February that AmEx’s contracts with vendors violated U.S. antitrust laws.
     AmEx’s rules “create an environment in which there is nothing to offset credit card networks’ incentives – including American Express’s incentive – to charge merchants inflated prices for their services,” Garaufis wrote in February. “This, in turn, results in higher costs to all consumers who purchase goods and services from these merchants.”
     The court did not put much stock in AmEx’s claims that the rules promote competition.
     A spokeswoman for AmEx noted that the company is still pursuing earlier plans to appeal, based on a belief that the court order “will not provide any benefit to consumers and will in fact harm competition by further entrenching the two dominant networks.”

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