The attorneys-general of eight states plus the Antitrust Division of the U.S. Department of Justice have settled antitrust claims against Visa and MasterCard over their restrictions on merchants' freedom to steer customers away from cards that carry high acceptance charges. 

They also sued American Express after it declined to settle.

The pact with Visa and MasterCard will force them to let merchants:

  • Offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment;

  • Express a preference for the use of a particular credit card network, low-cost card within that network or other form of payment;
  • Promote a particular credit card network, low-cost card within that network or other form of payment through posted information or other communications to consumers; and
  • Communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment.

Antitrust Division press release here; remarks by Division head Christine Varney here; complaint against American Express in the E.D.N.Y. here.

AmEx said the lawsuit would hurt competition:

The government’s new legal theory ignores a key point that the Justice Department previously made and that the courts have already decided: American Express does not have the ability to force merchants to accept its products or pricing.

“In today’s action, the Department has sued a party proven not to have market power,” said Kenneth I. Chenault, chairman and chief executive officer. “It represents an extraordinary retreat by the antitrust division. Instead of promoting competition, it now seeks to promote regulation that would ultimately limit competition.”

“We have no intention of settling the case,” said Mr. Chenault. “We will defend the rights of our cardmembers at the point of sale and our own ability to negotiate freely with merchants. We are confident that the courts will recognize the perverse anti-competitive nature of the government’s case and that we will continue providing a competitive, superior service to cardmembers and merchants.”

“Whatever the intent, the government’s new approach would hand an unfair advantage back to Visa and MasterCard,” Mr. Chenault said. “The Justice Department would, in effect, be undoing its own six year fight (1998-2004) to allow smaller payment networks like American Express to provide a competitive choice to consumers and merchants.”

The press release suggests that the fight will come down to whether AmEx has "market power" by virtue of its 24 percent share in General Purpose Cards and 37 percent in the Travel & Entertainment segment.  Paragraphs 55-68 of the complaint allege that AmEx does wield market power, citing "direct evidence" of it in the form of increasing card acceptance charges despite falling costs and discriminatory (higher) pricing to travel and entertainment vendors.

Will the deal with Visa and MasterCard produce lower charges for cardholders, who pay card acceptance charges when merchants pass them along in purchase prices?  Probably, at least with price-sensitive consumers, who'll whip out a cheaper card at the cash register and demand a discount.  But the outcome depends largely on whether merchants actually promote use of cards that carry lower acceptance charges and on whether Visa and MasterCard continue to impose widely varying acceptance charges from card to card.

The market power of Visa and MasterCard remains intact.  Which means they retain the ability and incentive to reap monopoly profits.  They may just do it some other way.