s it déjà vu all over again? A group of merchants is preparing a class action antitrust suit against a credit card company for pressuring merchants into accepting all the card products it offers, despite the higher fees it charges for some transactions. While the plot sounds familiar, this time the characters have changed.

Now that the Visa/MasterCard antitrust matter is settled (see "Supreme Court Decides Against Visa, MasterCard in Six-year Antitrust Suit," The Green Sheet, Oct. 25, 2004, issue 04:10:02), and former plaintiffs American Express Co. (AmEx) and Discover Financial Services celebrate victories, the tables have turned on AmEx. The company is now embroiled in a lawsuit that has the potential to include several million U.S. merchants if a class action is certified. Attorneys representing merchants across the country say that the tying agreements AmEx imposes on merchants to accept all of its products are illegal, as are the arbitration clauses it enforces.

The suit against AmEx was originally filed in 2003 in U.S. District Court, Southern District of New York. However, on Dec. 30, 2004, plaintiffs' attorneys added two more defendants to the complaint: Citigroup Inc. and MBNA Corp., which both recently announced issuing agreements with AmEx.

Now that AmEx is able to link its brand with such large commercial banks as Citi and MBNA, two of the three largest issuing banks in the country, the question of interchange fees becomes a huge factor for merchants.

According to Gary B. Friedman, lead attorney for the plaintiffs and a partner with the law firm Friedman & Shube of New York City, the higher interchange fees merchants must pay to accept AmEx-branded revolving credit cards from their customers are harmful to their businesses. With AmEx's well-publicized entry into the credit card business, in contrast with its more traditional charge card products, merchants may end up paying higher fees for cards that AmEx requires them to accept if they want to accept any at all.

As a result, Friedman contends, merchants could lose a considerable portion of their incomes if transactions including corporate travel purchases, an area AmEx has long focused on, are eliminated. The complaint cites AmEx's "tying" policy, through which it imposes high discount fees on credit card transactions; merchants accepting one AmEx card are required to accept all of them. Friedman contends the tying policies are anti-competitive and illegal.

Traditionally, AmEx has focused its charge card products on business travelers and affluent individuals. According to the complaint, these markets are distinct from the market for revolving credit services. Because the company has built its brand on the perception of wealth associated with using its cards, it historically has charged higher merchant fees. Friedman said the higher processing fees, which can be as much as 40% more than other credit cards, are one way AmEx entices banks to issue cards carrying its brand.

AmEx's agreements with Citi and MBNA reflect its "push to enter the revolving card market," he said. "These branded cards carry higher fees, and merchants are distressed about the rates they're charged by American Express."

Along with going forward with the class action, he said they will also litigate the issue of the stringent arbitration clauses AmEx enforces against small merchants. According to Friedman, these clauses would bar small merchants, and only small merchants, from participating in class actions, even while AmEx's policies hit those businesses the hardest.

"Small merchants are subject to provisions in their agreements, which inhibit their ability to win disputes with the company," he said. "We are arguing that the class action waivers would effectively give AmEx a free pass to violate the antitrust laws as against small merchants. A court date is set for Feb. 16, 2005 and we expect resolution of all AmEx's defensive motions at or around that time."

AmEx does not comment on pending litigation. However, in a statement sent in response to inquiries from The Green Sheet, it said: "As a point of fact, unlike Visa/MasterCard, American Express does not have market power. Merchants are free to choose whether or not to accept American Express cards. Merchants accept the American Express card because of the value that card acceptance delivers to their businesses."

Friedman questions what will happen to Visa and MasterCard interchange rates if issuing banks decide to move portions of their portfolios to AmEx cards in order to collect the higher transaction fees. "Visa has already increased its merchant fees to keep banks from defecting to AmEx," he said. "It's an upward spiral that hurts merchants, and therefore, their customers."