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Visa and MasterCard Settle DOJ Lawsuit, Amex Fights On

By Jason Beahm on October 06, 2010 10:04 AM

A settlement has been reached between Visa and MasterCard with the U.S. Justice Department, allowing merchants to provide customers with reward incentives to encourage paying with lower-cost debit or credit cards. The settlement did not involve any money.

The DOJ lawsuit settlement was not well received by competitor American Express. Amex plans to fight a antitrust lawsuit filed by the government. "We have no intention of settling the case," American Express Chief Executive Officer Kenneth I. Chenault said 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." American Express contends that retailers are free to choose the credit company that they prefer, but that they credit company is free to set its own terms. Amex says that it is simply uncapable of "forcing" retailers into agreements.

In effect, the DOJ lawsuit settlement means that merchants that accept just Visa and MasterCard will be allowed to encourage consumers to use specific cards by offering rewards, discounts, rebates or other deals. Attorney General Eric Holder called the old practices "anticompetitive," and said that the new rules will put money in consumers' pockets.

The lawsuit was brought because the Justice Department believed that the restraints on retailers created illegal competitive disadvantages and restrictions. The card networks had been buidling rules into their merchant agreements that prohibited merchants from offering incentives to encourage consumers to use lower cost cards.

Consumer and business advocate groups viewed the settlement as a huge positive: "Merchants, small and large, welcome today's news," said John Emling, senior vice president of government affairs for the Retail Industry Leaders Association, Business Week reports.

The Business Week article closes by offering an interesting legal analysis by Janet McDavid of Hogan Lovells US LLP, who represented Amex in a separate case. "I think the Department of Justice will have a very tough case ... Amex doesn't have the market power of Visa and MasterCard; it's not a 'must-carry' card. Balancing its justifications against the rules will be key to the analysis."

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