Credit/Debit Cards

AmEx to settle merchant lawsuits over non-discrimination, Honor All Cards measures

american expressAmerican Express agreed on Thursday to settle two merchant lawsuits filed against the company over its card acceptance agreements.

The first suit—filed in 2006—challenges company non-discrimination rules regarding merchant contracts, and the second—filed in 2004—challenges the company’s Honor All Cards measures.

Under the terms of the agreement, merchants can continue to surcharge customers as long as what they surcharge is not more than the rate charged on competing credit card networks; the rules are similar for surcharged customers paying with debit or prepaid cards.

Additionally, merchants will be permitted to surcharge credit cards, even if they choose not to surcharge prepaid and debit card transactions. Merchants agreed not to pursue any other legal challenges to AmEx’s non-discrimination and “honor all cards” provisions for at least 10 years after the changes are implemented.

The company agreed to pay reasonable fees for both of the court cases, up to $75 million. If merchants pursue individual suits or arbitrations for damages, they agree that any potential recovery will be limited to any damage sustained during the period prior to the implementation of the changes.

Merchants will be required to honor all American Express cards—except for U.S.-issued traditional debit cards—and they are prohibited from steering customers away from using AmEx products to competing products.

Unless the company implements the changes at an earlier date, they will take effect after the resolution of appeal to final approval of the settlement.

Tim Heine, the managing counsel of AmEx, said the terms “balance the interest of card members and merchants.”

“While the modification of our contract provisions gives merchants some additional flexibility, many merchants continue to believe, as we do, that surcharging is fundamentally anti-consumer,” Heine said. “Few merchants have taken advantage of earlier opportunities to surcharge out of concern that it could risk alienating customers, and drive them to patronize competitors who do not surcharge… Unlike Visa and MasterCard, we do not have market power. We operate a competitive, dynamic business with a unique business model. Resolving these lawsuits will allow us to stay focused on helping merchants build their business and strengthen their customer relationships.”

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