Magazine article American Banker

AMEX Class Action Settlement Lets Merchants Surcharge

Magazine article American Banker

AMEX Class Action Settlement Lets Merchants Surcharge

Article excerpt

Byline: Kevin Wack

American Express (AXP) will make it easier for U.S. retailers to charge a fee when customers pay with its credit cards, under the terms of a class-action settlement announced Thursday.

However, it is unlikely that the settlement, if approved in court, would create a rise in surcharges on credit-card purchases, observers say.

As a result of another recent legal settlement, Visa (NYSE: V) and MasterCard (MA) now allow merchants who accept their credit cards to impose surcharges at the point of sale. Visa and MasterCard still do not allow surcharges on debit card transactions.

Retailers have faced significant impediments to passing on the costs of credit card acceptance on a widespread basis. One barrier was American Express' rules, which prevent retailers from charging a fee unless they do the same for debit and credit cards issued by other companies.

Under the settlement, American Express would revise its rules. A retailer that accepts Amex still would not be allowed to charge a higher price than it does on MasterCard and Visa credit cards, and MasterCard and Visa debit cards are left out of the comparison.

The settlement will allow merchants to begin passing the cost of swipe fees on to credit card users, says Gary Friedman, the plaintiffs' lawyer.

"And what that's going to do is that's going to drive a lot of traffic to debit," Friedman says, noting that debit cards are significantly cheaper for merchants than credit cards are. "This settlement is designed to move that needle."

American Express cast doubt on the likelihood that the settlement will have a meaningful effect on the frequency of surcharging. …

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