American Express violated US antitrust law by preventing merchants from recommending consumers use cheaper credit cards, a federal judge ruled on Thursday.
The US government and 17 states sued American Express in 2010 for forbidding merchants to advise customers to use cards with lower processing fees.
The ruling said the card processor, which charges a higher percentage fee than rivals Visa and MasterCard to process card transactions for merchants, damaged competition by banning merchants from giving incentives for consumers to use other credit cards.
“There is nothing to offset credit card networks’ incentives – including American Express’s incentive – to charge merchants inflated prices for their services,” the judge wrote. “This, in turn, results in higher costs to all consumers who purchase goods and services from these merchants.”
The card processor plans to appeal US District Judge Nicholas Garaufis’ decision, claiming that it would harm competition by “further entrenching” the dominance of Visa and MasterCard. No material damages were sought, but the card processor said the ruling could have an adverse effect on its business.
Visa and MasterCard have also been sued for blocking merchants from advising the use of other cards, but settled in 2011 by agreeing to make charges. Industry analysts believe that the decision against American Express may make it easier for smaller card processors to enter the market.
Credit card companies charge merchants more than $50 billion a year to process consumer transactions.
American Express also lost an exclusive partnership with Costco earlier this month.
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