The longtime chief executive of American Express Co. refused for years to settle an antitrust case with the U.S. government, vowing to fight even as the company’s top rivals cut deals.
On Thursday, a U.S. District Court judge sided with the Justice Department, ruling that AmEx’s rules are anticompetitive by not allowing merchants to promote other cards or offer certain discounts. For Mr. Chenault, the loss was the second big blow in a week, following AmEx’s surprise announcement that its 16-year partnership with Costco Wholesale Corp. would end next year.
The ruling means that merchants who accept AmEx plastic would be permitted to encourage customers to use other, potentially cheaper cards, such as ones that are branded by Visa Inc. and MasterCard Inc. Merchants also could offer discounts to shoppers for using cards other than AmEx and post signs that specify which card they prefer.
The financial impact isn’t immediately clear, but AmEx could potentially lose customer spending on its cards or be forced to reduce its rates to merchants, according to industry observers. AmEx has said in financial filings that it could suffer a material adverse effect on its business if it lost the case.
AmEx historically has charged merchants higher fees than those that are set by Visa and MasterCard, although that gap has narrowed in recent years. AmEx uses the fees that it charges to merchants to fund its rewards program and provide other perks to its cardholders.
“American Express might have to bring their fees down and that could potentially destroy their brand image as a premium product,” said Richard Hernandez, an antitrust lawyer at McCarter & English LLP in Newark, N.J., who has been following the case.