American Express Co. finds itself swirling in the middle of anti-trust litigation and proposed settlements that the company isn't directly a party to.
In district court in New York last week, Amex declined a plaintiff subpoena related to the swipe-fee litigation against Visa Inc. and MasterCard Inc. to provide information regarding the card brand's experience with merchant surcharging in Australia.
"American Express is not a party to the lawsuit, and the request was made by the plaintiffs, not the judge," American Express spokeswoman Sanette Chao says. "The discovery process is long over, therefore we have declined the request."
The swipe-fee lawsuit prompted a proposed $7.2 billion settlement with Visa Inc. and MasterCard Inc. last year. As part of the settlement, Visa and MasterCard allowed merchants to add surcharges for credit card users starting this week — which is where Amex's experience comes in.
Merchant surcharging began in Australia in 2003, with very few merchants participating at first. But today a third of the country's merchants charge a fee for credit card use, with most of those being hotels, supermarkets, department stores and utility companies, according to the Reserve Bank of Australia.
In June 2012, the Reserve Bank's payments systems board adjusted its standards to allow card scheme rules, starting in March 2013, to limit surcharges to "the reasonable cost of card acceptance." The board took up the matter because of concerns that some merchants in Australia were charging "well in excess of acceptance costs," according to its website.
"I am not as familiar with the surcharging in Australia, but the plaintiffs here are likely trying to show that policing this will be hard," says Madeline K. Aufseeser, senior analyst with Boston-based Aite Group.
American Express has no policy prohibiting merchants from charging the extra fee for credit card users, though its merchant agreements say a retailer cannot charge extra to a consumer using an Amex card if they don't charge for use of other cards, Chao says.
In addition, Amex’s contract states merchants adding a surcharge "must apply at least the same surcharge to all payment cards and payment methods they accept, including debit cards, PayPal and Google Wallet," Chao says. The surcharge would not apply to cash, check or electronic funds transfers in which the merchant has a pre-arranged payment setup through a direct debit to their customer's checking account, she adds.
Amex’s rules complicate matters even more for merchants considering the new checkout fee, but also apply some risk in that merchants may consider dropping Amex transactions.
In practice, however, "I think most merchants will just forget about surcharging," Aufseeser says. "The implementation of it is a nightmare at the cash register because it has to figure out what type of transaction it is and add the proper surcharge amount." Merchants can't disparage the card brands in any way regarding the surcharge fees, Aufseeser says. "The merchant is the one charging the fee, so how are they going to word that in their disclosure and keep the customer coming to their store?"
Based on what Chao says, American Express also likely does not agree with the argument that allowing merchants to pass along a swipe fee to consumers helps make the payment process more transparent.
"We believe that surcharging credit card purchases is harmful to consumers," Chao says. "It is not a customer-friendly practice for a merchant to attract a customer to its store or website to shop, and then to penalize the customer for using a card that the merchant accepts."
An appeals court ruling expected this week addresses a motion by the National Association of Convenience Stores and other merchants that were rejecting the terms of the swipe-fee settlement, saying it protected Visa and MasterCard from future litigation and does nothing to keep swipe fees from rising in the future.
"The swipe-fee litigation has been an eight-year fight, and I totally understand why the merchants don't want this settlement, if they believe there is a better deal," Aufseeser says. "My fear is that it would take that many years again to get a better deal."
Previous attempts by retailers to appeal the settlement were denied because final approval of the settlement had not taken place. Judge John Gleeson approved the settlement on Nov. 9, 2012 in the U.S. District Court, Eastern District of New York. The U.S. Court of Appeals for the Second Circuit in New York is expected to rule this week on the motion by merchant organizations seeking to appeal the preliminary approval.