Justice Department sues American Express

Posted on by Forest in General, Grocery Shopping, Opinion, Recipes & Food, Saving Money & Finances

When I saw the news that the Justice Department was suing American Express I had to read into this more. To hear that the government was going after the credit card companies in court interests me because I do think that some of their business practises need looking at from a legal perspective and this interesting story seems like it has good connotations for the retail industry big and small.

The Department of Justice went over the 3 major credit card companies (Visa, Mastercard and American Express) over practises which meant that they would not supply credit card processing services to merchants that offered discounts to customers for using alternative payment methods. This effectively help retailers to ransom as in this modern age it’s almsot impossible to run a decent business without offering credit card as a payment option. The Department of Justice (rightly in my opinion) saw this as an unfair practise.

They have settled with Visa and Mastercard and apparently they will no longer impose these unfair practises. However the case is still open against American Express but the Department of Justice are hoping for a settlement to be reached with them also.

What this effectively means for merchants

It took me a bit of reading to get my head round this (so I hope I have it right). Merchants are expected by customers to offer credit cards. Using a credit card for a customer typically does not incur a fee however a merchant has to pay somewhere around 3%-5% per transaction to process a credit card. That is quite a large chunk of profit and to deal with this retailers generally raise their prices across the board to allow of these charges.

The 3 major card companies have basically been saying (before the DOJ got involved) that if you offer your customers rewards or discounts for using an alternative payment method then we will not allow you to process our cards anymore and you will lose the ability to offer our card as a payment method. Of course for most merchants this simply is not an option! They were effectively being forced into a situation where they needed to bow to the credit card companies wishes.

Now, at least with Visa and Mastercard and hopefully soon AmEx, a merchant will be able to offer say cheaper prices for using debit or cash and the credit card companies will not be able to withdraw the service of processing card transactions based on that reason.

So what? What should we do about it?

The credit card companies will just find other ways and legal wording to keep their grip and control over merchants so the settlements and things do not have a whole lot of significance themselves as far as I am concerned.

But this case of suing American Express has brought the point to the media. I don’t care too much about the large businesses but your local small businesses are losing a significant amount of profit to credit card transaction fees.

It’s our responsibility to use cash or debt with small business if we can and help them operate with less fees and overheads. If you spend $100 a month in a local store and you use cash you could be adding up to $60 to their annual profit. Better yet they may even offer a discount for cash soon.

With the big retailers the discounts they offer need to be considered against the benefits you get from using the credit card. Are the air miles or the extra grocery store points worth more. Does the discount represent the money they are saving?

As always I would more than love your opinion on this and if I got my facts straight…..

Tags: american express being sued, american express sued by department of justice, doj sues amex, justice department sues mastercard, justice department sues visa, unfair credit card transaction fees american express