Amex Has 30 Days To Modify Merchant Agreements, Unless Stay Is Granted

American Express must drop within 30 days anti-steering provisions in its merchant agreements and notify merchants of their newfound right to steer consumers to preferred or less costly payment methods, a federal judge ordered on Thursday.

The company already is fighting back, not only reiterating its plan to appeal but also stating it would request a stay of the judge's injunction. "If our request for a stay is granted," an Amex spokesperson noted in an email, "there would be no change to our merchant agreements while the appeals process is pursued."

Barring that, the judge ordered a series of steps Amex must take to modify what the court found to be illegal contractual prohibitions.

Among the abilities Amex fought for but that the judge shot down: It no longer can prohibit merchants from offering rebates, discounts or "enhanced service" to steer customers to preferred card brands or types.

Merchants also would be free to encourage consumers to use cheaper forms of payment and promote preferred cards, and they could communicate at the point of sale a "reasonably estimated" cost incurred for accepting different cards or brands.

The judge ordered that such estimates could include "average" or "actual" acceptance costs. In contrast, Amex proposed to allow only "transaction-level steering," meaning merchants could steer customers to other cards only when a specific transaction is more expensive on Amex.

After losing its lawsuit to the U.S. Department of Justice in February, Amex was directed by the judge to propose modifications to its contested "non-discrimination provisions." Yet, Amex's proposals were rife with so many carve-outs and caveats that DOJ called them "overly restrictive" or "unworkable." The judge's order comes closer to the remedy preferred by DOJ, which praised the injunction.

"These rules have stifled competition among credit card networks by blocking merchants from encouraging their customers to use particular credit cards," according to a statement attributed to DOJ acting assistant attorney general Leslie Overton.

According to the injunction, Amex still would be free to enter into merchant agreements in which it is the only card accepted and into cobranded or affinity deals. Further, Amex still can preclude merchants from disparaging or mischaracterizing its brand or surcharging the use of its card, according to the judge's order.

The court ordered Amex within 10 days to provide DOJ and representative plaintiff states a proposed merchant-notification form describing the changes resulting from the permanent injunction. Amex in the notice also has to include an official statement composed by the court that notifies merchants of Amex's violation of the law.

Further to the judge's order, should Amex wish to implement any rule that "restricts, limits or restrains how any merchant accepts, processes, promotes or encourages" the use of general purpose or debit cards, it must notify DOJ 30 days in advance.

The injunction expires 10 years after the April 30 effective date.

Amex has been fighting the case since 2010 when DOJ first brought the suit against the three major card companies, including MasterCard and Visa.