The personal credit card industry has come under intense government scrutiny for good reason. Between Visa, MasterCard and American Express, Americans spend (or charge) over one trillion—that’s trillion with a “t”—dollars per year. For years, merchants were forbidden by Visa, MasterCard and American Express from advocating for alternatives to credit payments. For example, merchants are forbidden from offering (or advertising) discounts if you pay cash (although many do).
Forbidding such a choice helps to maintain higher credit card fees. Yesterday’s settlement (see the Wall Street Journal story here or the New York Times story here) takes a big step toward creating a level playing field. All you can really hope for: Visa (#1) and MasterCard (#2) agreed to eliminate restrictions that foreclosed a merchant’s ability to both forbid and advertise alternatives such as discounts for paying cash.
Conspicuously absent from the agreement was American Express. Fighting American consumers and American law enforcement, “American” Express vowed to fight the proposed changes. Why? Simply put, they have the most to lose (they charge higher fees). Attorney General Eric Holder, my former boss, was strident in his opposition to the company’s position:
Because American Express has refused to change its rules, consumers are being held hostage from receiving the expanded choices and lower prices that they deserve under our settlement… We cannot allow this to stand.
Well said, General. AmEx, already notorious for charging 25% more in merchant fees than Visa or Mastercard, puts its greed on display. CEO Kenneth Chenault of AmEx hypocritically calls the government’s case “anticompetitive,” omitting the glaring and obvious truth: AmEx’s standard agreement forbids its merchant clients from soliciting non-credit forms of payment. Now that’s anticompetitive behavior.
The financial crisis we are still paying for taught us that enhanced corporate disclosure, transparency and consumer protection are more curative if served for breakfast and not for dessert. Pushing Visa and MasterCard to provide more disclosure and fewer restrictions on merchants is surely a step in the right direction. As to American Express, let’s hope they do the right thing instead of using our court system to delay justice hoping merely to enhance their own profits.