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Discover President Roger Hochschild, testifying at a government antitrust trial of American Express in federal court in Brooklyn, N.Y., said his company tried to offer low interchange rates in the late 1990s and then gave up because bigger, higher-cost rivals had too much market power.
July 10 -
A trial that began Monday in a government lawsuit against American Express will determine whether merchants are allowed to offer incentives to consumers to use a particular credit card. The two sides completely disagree on whether Amex's rules ensure or undermine competition.
July 7
American Express rules barring businesses from asking customers to use lower-cost credit cards violate U.S. antitrust law, a federal judge found.
It's the first definitive court decision on practices that allow card firms to collect about $50 billion a year in fees from merchants.
Amex dropped 2.1%, to $78.12, at 10:42 a.m. The shares have slid 16% this year, the worst performance in the Dow Jones Industrial Average.
The Justice Department victory in its lawsuit against the credit card company might give merchants more leverage in their efforts to cut the costs, which are largely hidden from consumers, and is the latest in a series of blows to the New York-based card firm after its partnerships with Costco Wholesale Corp. and JetBlue Airways Corp. ended.
Amex failed to show that its so-called non-discrimination provisions, imposed on merchants who agree to accept its card, do not harm competition, U.S. District Judge Nicholas Garaufis in Brooklyn said in his ruling Thursday.
Garaufis said he would issue remedies against Amex later.
The government alleged the company used the rules to illegally force merchants to pay higher fees.
The card firm claimed the rules actually promote competition by allowing it to coexist with more widely used card brands Visa and MasterCard. American Express said the higher fees also help it fund generous services that set it apart from competitors, and that customers might be less likely to use the card if merchants express preference for others.
The case is U.S. v. American Express Co., 1:10-cv-04496, U.S. District Court, Eastern District of New York (Brooklyn).
