THE JUDGE OF AMEX
Garaufis ruled in February that merchants can steer customers to less expensive forms of payment than Amex, ending long-standing contractual restrictions. In December, however, Amex received a stay on the decision for the duration of its appeals process.
U.S. District Judge for the Eastern District of New York Nicholas Garaufis ruled in February 2015 that merchants can steer customers to less expensive forms of payment than American Express. If that verdict is sustained, it could turn Amex’s business model on its head, as merchants would have the leverage to negotiate lower acceptance fees, thereby eroding Amex’s merchant rates over time.
It all started when the U.S. Department of Justice filed an antitrust lawsuit in October 2010 against the three major card networks over their merchant agreement clauses that prohibited merchants from steering customers to lower forms of payments. “American Express, MasterCard and Visa have inhibited merchants’ ability to reduce card acceptance costs and therefore their retail prices to consumers,” according to the DOJ, which said acceptance fees amounted to $35 billion a year.
MasterCard and Visa quickly settled with the DOJ, but Amex, the network the DOJ said had the highest rates, argued that it had the fewest cards in circulation and the fewest accepting merchants. Allowing merchants to steer customers to the two dominant networks, it said, would hamper competition.
On the corporate card side, however, DOJ lawyer Craig Conrath painted Amex as the powerful party, commanding 60 percent of corporate card sales volume, and merchants as the vulnerable ones. During the trial, which began in July 2014, he brought Alaska Airlines up to testify that the antisteering provision in its contract with Amex left the carrier with just two choices: pay Amex’s high acceptance rate or lose significant corporate card business.
Garaufis ruled that Amex’s merchant agreement provisions violate federal law and constitute “unreasonable restraints on trade.” After appeals and requests for stays on the decision, Amex was forced to amend those provisions, and on Dec. 8, BTN named Garaufis one of its most influential people in the business travel industry in 2015.
The case has taken a turn since, as a U.S. court of appeals ordered a stay on the earlier decision, meaning the card network can temporarily reinstate its antisteering merchant rules.