San Francisco Sues American Express Over Merchant Restraints

By Anne Steele 

The city of San Francisco has sued American Express Co. for anticompetitive and alleged illegal merchant restraints.

The civil suit, filed by city attorney Dennis Herrera, follows a federal court decision from earlier this year, in which the U.S. Justice Department and 17 state attorneys general said restrictions long imposed by American Express on participating merchants unlawfully restrained trade and violated federal antitrust laws.

A representative from American Express wasn't immediately available for comment.

The statewide consumer protection case alleges the global charge card giant is "responsible for billions of dollars in excessive and improper costs" borne by retailers and, indirectly, all California consumers.

The suit alleges American Express owes billions in civil penalties and restitution to merchants under California's Unfair Competition Law.

"The party is over for American Express, and the bill is coming due in California," Mr. Herrera said in a statement. "The federal court ruling earlier this year merely confirms what millions of retailers, economists and U.S. Justice Department officials have known for years: American Express has rigged the game. They shook down merchants, stifled competition, and shifted costs for their extravagant member perks to even cash-paying consumers. It's unfair, it's illegal, and--under state law--it warrants tough penalties and restitution for California's merchants."

The state attorney says American Express has charged a 3% fee on each card transaction, in excess of fees charged by competitors like Visa and MasterCard, accounting for roughly $2.25 billion in fee payments annually by California merchants.

At the same time, according to Herrera's complaint, American Expresss strictly prohibited its participating merchants from taking any step to encourage consumers' use of less costly payment methods, including cash.

"Sellers' uniform pricing mandates effectively forced all consumers to subsidize the high fees and generous rewards American Express continues to lavish on its generally affluent cardholders," according to the state attorney's office.

The complaint, filed in San Francisco Superior Court on Nov. 6, seeks a judicial declaration that American Express's merchant restraints violate California law, and an injunction barring the company from enforcing its contractual provisions.

Mr. Herrera contends each charge card transaction warrants the $2,500 penalty authorized under the state's unfair competition law.

The complaint also seeks restitution for California merchants as well as attorneys' fees and costs of the suit.

Write to Anne Steele at [e-mail]

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November 19, 2015 08:56 ET (13:56 GMT)

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