The U.S. Justice Department filed an antitrust lawsuit against American Express
(NYSE:AXP) on Monday alleging the credit card company's merchant agreements unfairly force merchants to take its higher-fee cards over its competitors Visa and MasterCard.
The suit comes at the same time that Visa (NYSE:V) and MasterCard (NYSE:MA) settled with the Justice Department over similar charges related to merchant fees.
But instead of following the lead of Visa and MasterCard, AmEx CEO Kenneth Chenault said the company plans to fight the charges, saying in a statement “we will defend the rights of our card members at the point of sale and our own ability to negotiate freely with merchants.”
The lawsuit against American Express is the latest in government crackdowns against the credit card industry since the financial crisis and new Dodd-Frank financial regulatory reform law.
At the center of the suit are the agreements that merchants sign with American Express in order to accept the company’s charge and credit cards. According to the lawsuit, merchants are banned from “promoting or encouraging the use of a competing credit or charge card with lower card acceptance fees.”
Like Visa and MasterCard, American Express charges a per-transaction fee to merchants each time a consumer uses an American Express-branded charge or credit card. American Express processing fees tend to be higher than Visa and MasterCard, a cost that AmEx justifies because it markets to a customer with on average a higher net worth and better spending habits.
American Express said its merchant agreements that ban “steering” -- the industry term for when a merchant tells a customer to use a lower-fee card -- is part of a private agreement between American Express and the merchant.
The process known as steering is controversial in the credit card industry and a point of contention between merchants and the processors. Merchants have often complained that credit card processing fees are too high, requiring them to raise prices or cut into their profits.
“While American Express negotiates many contracts that allow merchants to run promotional campaigns with competing networks, they do not permit disrupting card members at the point of sale,” the company said in a statement. “The government’s proposed solution would eliminate that protection.”
American Express places third in the credit card processing industry, with Visa and MasterCard making up more than 75% of all transactions.
“Instead of promoting competition, it now seeks to promote regulation that would ultimately limit competition,” Chernault said in a statement.
Shares of American Express dropped more than 6% on Monday to $39.23. They are down 3.2% so far this year.