American Express Co.'s anti-steering rules have long been a stick in the craw of card-accepting merchants, and anti-trust attorneys at the U.S. Department of Justice. On Feb. 19, 2015, a U.S. District Court judge weighed in, ruling that AmEx's take-it-or-leave it policy amounts to "an unlawful restraint on trade."
AmEx, however, isn't budging on its position. Within hours of the decision being handed down the card company said it was readying an appeal. "We believe that freedom of choice and fair competition are worth defending," the company said in a statement following the court's decision. "We look forward to presenting our case to the appellate court, and believe we should prevail on appeal."
The court decision follows disclosures by AmEx that its long-standing partnerships with Costco Wholesale Corp. and JetBlue Airways Corp. were on the rocks. The company's stock price took an immediate hit, falling 2 percent the day the court ruling was issued.
The legal dispute over AmEx's anti-steering rule dates back to 2010, when the Justice Department and the attorneys general for seven states filed suit against AmEx. They argued that the company's rule against merchants steering customers toward lower-cost payment options was anti-competitive and a bad deal for consumers.
Faced with the prospect of similar legal action back in 2010, MasterCard Worldwide and Visa Inc. scuttled similar rules. As a result, merchants are now free to steer customers away from using those two card brands with discounts for cash, rebates and other perks.
AmEx balked at the prospect of settling the case and took it to court instead. The card company insisted that the nearly 54 million cards it has placed in U.S. consumers' wallets are too few for it to be deemed a competitive threat to MasterCard and Visa. (Combined, MasterCard and Visa cards in Americans' wallets are estimated to total about 460 million.)
Forcing AmEx to ditch its anti-steering rule "would harm competition by further entrenching the two dominant payment networks, Visa and MasterCard," the company stated in a press release about the court ruling. "Only a small percentage of Visa and MasterCard holders carry American Express cards. By contrast, most American Express Card Members carry a competing card in their wallet. Today's decision means merchants would be able to steer customers to use Visa and MasterCard, while it would be virtually impossible to steer away from them."
U.S District Court Judge Nicholas G. Garaufis rejected AmEx's arguments in a 150-page decision. "American Express's merchant restraints harm inter-brand competition," he wrote. "Steering is a lynchpin to inter-network competition on the basis of price. Without the ability to induce merchants to shift share in response to pricing differentials, a credit card company like Discover cannot increase sales or gain market share by offering merchants a more attractive price than its competitors."
Not surprisingly, merchants cheered the District Court decision. They seemed emboldened by it also, and hinted that this would not end their ongoing campaign to force changes in the cost of card acceptance.
"Today's ruling is one step forward to bringing badly needed competition and transparency to the entire credit card industry," the Merchants Payments Coalition said in a statement. "Merchants across the country are thankful to the U.S. Department of Justice and to the judiciary for recognizing the anti-competitive nature of American Express' rules." 
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