American Express has announced that it has reached a settlement agreement with a group of small and midsize businesses that had filed a class-action lawsuit against the company. American Express agreed that merchants can charge its cardholders surcharges for using their credit card for payment as long as the same amount is levied on other credit and charge card users. According to a lawyer representing the company, American Express agreed to drop a measure that required the merchants to charge debit card surcharges at the same level. A judge must approve the agreement before it can take effect.
After a decade of legal battles, recent developments in two cases may cause many retailers to change their pricing practices. Major credit card companies are starting to back away from policies that prevented merchants from implementing surcharges for customers that choose to pay with a credit card. In other recent actions, a judge approved a settlement that included a similar change of rules in a huge class-action lawsuit against Visa and MasterCard. The settlement with Visa and MasterCard was reported to be the largest private antitrust settlement in American history.
If the agreement is accepted, it will make it possible for vendors of all types to institute a two-tier pricing system that treats those who pay with cash or debit and those who pay with credit or charge cards differently. The surcharges would be levied at the register to shoppers who pay by credit. To recoup the cost of credit card transaction fees in the past, the retailers had little recourse other than raising the prices of all of their products, spreading the charges to all of their customers.
Marc Morrison, owner of Animal Land Inc. and one of the plaintiffs in the American Express case, said, “What I really am pleased about is the transparency that this creates. Merchants can now effectively incentivize their customers to pay with debit cards.” Gas stations in certain states already offer discounts to customers who use cash.
However, not everyone is happy with the agreements. Some retailers have already indicated they would appeal the terms of the Visa-MasterCard settlement. Mallory Duncan, general counsel of the National Retail Federation, said, “Our members have no interest in surcharging generally. It’s too complex and it’s consumer unfriendly.” What they really want, he said, is lower transaction fees and more competition in the payments market.
