Credit cards: Will US suit against American Express affect you?

The Department of Justice recently filed a lawsuit against Visa, MasterCard, and American Express. Their beef? Credit card networks give merchants “take it or leave it” terms when they agree to accept credit card payments. These terms prevent retailers from charging different prices for credit card use versus other forms of payment, and in exchange they get the right to accept credit cards.

The DOJ suit argues that this practice is anti-competitive, and if you read between the lines, the DOJ believes that this practice is causing artificially high network usage fees, which means a greater burden and merchants and higher prices for consumers.

As you may have read, MasterCard and Visa quickly settled the suit and amended their rules, whereas American Express is fighting back. So until the Amex suit is reconciled, merchants that accept all 3 types of cards cannot steer shoppers towards one payment form or another, while those who currently accept only Visa and MasterCard have been given the freedom to do as they please.

1. Will this have any impact on my wallet?

Probably not, for three reasons:

• It is impractical for merchants to charge different prices on each type of credit card, given that there are thousands of cards out there.
• The litigation is largely redundant, since the recently passed Durbin Amendment contained a provision that allows merchants to charge credit card users more.
• American Express is likely to win the antitrust lawsuit anyway.

So first of all, there are a ton of credit cards out there. Our website compares over 600 credit card offers, and we’ve identified thousands more, so common sense might suggest that it’s impractical for stores to train cashiers to differentiate between a Visa Classic card and a Visa Signature card, and have them charge varying amounts.

Second, the difference between the cheapest average discount rate at Discover and the most expensive average discount rate at American Express is only 0.7%. Common sense might tell you that merchants probably won’t want to alienate affluent customers who carry rewards cards in order to squeeze them for 7 cents on a $10 transaction. The Durbin Amendment already gave retailers a huge victory over banks, by allowing merchants to charge credit card users more than cash users. It’s unlikely merchants will get much more granular beyond that. [Editor's note: This paragraph was corrected to reflect the actual difference in discount rates between Discover and American Express.]

Lastly, American Express has 24% market share of US credit card spend volume. This low market share leads many financial analysts to believe that the DOJ does not have an antitrust case against the company at all, especially when you consider that Visa/MC have ~70% share. Amex is also not widely accepted because merchants can realistically opt out of the American Express network, making it tough to argue that they wield any abusive monopoly power (only 4.5m merchants accept Amex, versus over 7 million for Discover and about 8 million for Visa/MasterCard).

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