Amex Takes Stand Against Anti-Competition Suit
By: Brian O'Connell

Uncle Sam has taken a hard look at the major credit cards, dubbing them “anti-competitive” and initiating a lawsuit against the three largest providers. In a legal rarity, it’s getting some results right away.

Some of those results are good, and some could be big trouble.

While Visa (Stock Quote: V) and MasterCard (Stock Quote: MA) say they’ve already agreed to a settlement with the government, American Express says it will fight the charges. In their view, the government’s legal remedy “will do nothing to enhance competition.”

Responding to accusations by U.S. Assistant Attorney General Christine Varney that its credit card rules were “the most restrictive,” Amex came out firing in its own defense. “We have no intention of settling the case,” said American Express chief executive officer Kenneth Chenault in an official statement. The company says it’s hiring high-profile lawyer David Boies to fight the case.

At the heart of the government’s lawsuit is the right of retailers to control what payment options they can offer customers. Uncle Sam wants retailers to have more wiggle room on issues like payment discounts, rebates or other services depending on what credit or debit card holders choose. The government has accused the big credit card companies of blocking retailers from offering payment options with competing cards, which may have lower fees than the ones charged by “The Big Three.”

So-called “merchant” fees produced $35 billion in profits between the three major card companies in 2009, according to the Associated Press. While the details of the settlement between the government and Visa and MasterCard are still being hammered out, the upshot for consumers is that both companies have agreed not to stop retailers from providing customers with discounts and rebates from other payment sources. Visa says it’s not required to pay any fines or fees under the settlement agreement.

The backdrop for the lawsuits starts with a peeved U.S. Attorney General’s office, which used some pretty strong language in spelling out the details of the case. "We want to put more money in consumers' pockets, and by eliminating credit card companies' anti-competitive rules, we will accomplish exactly that," Attorney General Eric Holder said at a March 4 news conference. "The companies put merchants and their customers in a no-win situation" and "consumers are being held hostage."

Reading between the lines, the government took a big public relations hit with the news last week that MasterCard’s net income rose 31% for the second quarter of 2010 – despite the shackles slapped on credit card companies via the Credit Card Accountability, Responsibility, and Disclosure Act (CARD).

When credit card companies continue to rake in big bucks right after the government has taken great pains to limit their revenues from higher interest rates and fees and penalty payments, Uncle Sam doesn’t like it.

With enormous resources on hand, the government now turns to the courts to stop American Express’s “anti-competitive” behavior. Let the lawyering begin.

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