| NEW YORK, July 7
NEW YORK, July 7 American Express Co has
hindered price competition in the U.S. credit card market and
prevented merchants and consumers from reaping cost savings, a
lawyer for the U.S. government said on Monday during the first
day of a trial in Brooklyn federal court.
In an antitrust lawsuit, the U.S. Justice Department and 17
states have accused Amex of blocking credit card companies from
lowering processing fees and allowing businesses to pass on
savings to consumers.
Every year, credit card companies charge merchants more than
$50 billion to process consumer transactions, according to the
At issue in the bench trial, expected to last nine to 10
weeks, are rules Amex imposes on the millions of merchants that
accept its cards barring them from offering incentives to
customers to use less-expensive credit cards when making
"Amex doesn't want consumers to have simple, truthful
information about how much their cards cost," Craig Conrath, an
attorney for the Justice Department, said.
U.S. District Judge Nicholas Garaufis of Brooklyn, who is
overseeing the trial and will determine the outcome, asked few
questions on Monday and did not offer any clues on how he views
The government's suit seeks an order allowing merchants that
accept Amex to give consumers incentives to use less-expensive
The stakes are high for Amex, which uses the processing fees
it charges merchants to provide rewards to its cardholders. In
securities filings, American Express has said that an adverse
ruling "could have a material adverse effect" on its business.
During his opening statement, Evan Chesler, an attorney for
Amex, said that the government case is an "assault on Amex's
business model, a model that has in fact driven competition to
the enormous benefit of merchants and consumers for a number of
Chesler said that Amex has invested billions to provide
high-quality service and rewards to its cardholders, which help
differentiate it from bigger competitors.
The U.S. Justice Department and several states sued Amex,
Visa Inc and MasterCard Inc in 2010 over rules that
allegedly obstructed price competition. The latter two settled
the case the day it was filed. The states include Michigan,
Ohio, Texas, Missouri, Maryland, Arizona and Iowa.
Conrath of the Justice Department said Monday that the
evidence presented at trial will show that if not for Amex's
"anti-steering" rules, merchants would use strategies to reward
consumers to use lower-cost credit cards like giving them free
upgrades for certain services or price reductions. He also said
that credit card companies would compete on price.
Discover Financial Services, Conrath said, tried to
offer merchants lower processing fees but the strategy failed
because of Amex's rules.
The case is United States of America, et al v. American
Express Co, U.S. District Court for the Eastern District of New
York, No. 10-04496.
(Reporting by Andrew Longstreth; Editing by Cynthia Osterman)