American Express Follows Visa and MasterCard in Allowing a Surcharge on Credit Card Transactions

Ronald A. Clifford, Esq.

The U.S. District Court in Brooklyn, New York, made history last December by approving on a final basis, the largest anti-trust class action lawsuit ever filed.  That record breaking lawsuit was the culmination of several suits filed by a number of parties against Visa and MasterCard, which suits were eventually combined into a class action suit.  Among other things, the class action suit against Visa and MasterCard claimed an anti-trust violation of the two card companies, and several issuing banks, by their purported collective efforts to artificially set interchange fees.  When a merchant accepts a credit card as a form of payment for goods or services, that merchant is often charged a fee by the underlying credit card company, which fee is a percentage of the total amount charged.  This is called an interchange fee.  That interchange fee has historically been 1-3% of the transaction.

Besides a cash settlement to be paid by Visa and MasterCard of more than $7 billion, the settlement with Visa and MasterCard contains a rule change provision.  Most significant in those rule changes is the ability of merchants to do what was permitted prior to the rule changes; surcharge.  A surcharge is simply a fee charged by the merchant to its credit card paying customer to offset the interchange fee incurred by the merchant for accepting the credit card of the customer.  A surcharge shifts the expense of accepting a credit card, at least the interchange portion of the expense, to the customer.  As of January 2013, merchants, subject to certain rules, are allowed to apply a surcharge to credit card transactions involving Visa and MasterCard credit cards.  Questions still remained, however.  Most notably, how would American Express play into the Visa and MasterCard settlement given the fact that American Express was not a party to that settlement?

The question of American Express as to the surcharge ability under the Visa and MasterCard settlement was recently answered, in large part.  On February 6, 2014, American Express entered into a settlement agreement in a separate class of lawsuits that specifically addressed the ability of merchants to surcharge a customer using an American Express card to pay for goods or services.  On February 6, 2014, the District Court in Brooklyn, New York, preliminarily approved a settlement agreement between American Express and plaintiffs of a number of lawsuits that stem from as early as 2003, which plaintiffs claimed American Express, among other things, violated anti-trust laws.  Although the American Express settlement lacks some of the more newsworthy provisions, such as the multi-billion cash portion of the Visa and MasterCard settlement, it provided a framework for new surcharge rules regarding American Express credit cards that attempt to mirror the Visa and MasterCard surcharge rules.

The American Express settlement provides that the merchant will have the option to surcharge American Express credit card transactions.  The ability to surcharge American Express cards will need to be preceded by notice requirements to both American Express and customers of the merchant.  The surcharge is subject to caps and a calculation on fixing the surcharge, all aimed at offsetting the interchange fee, and not representing a profit for the merchant.  There is also a sunset provision on the American Express surcharge rule.  These provisions track the Visa and MasterCard rules on surcharging very closely.  As some have written, the American Express surcharge rules “unlock[] the value of the settlement with Visa and MasterCard.”  This is because the Visa and MasterCard surcharge rules could only be applied if the merchant that also accepted American Express cards could also surcharge American Express transactions in a fashion similar to the proposed Visa and MasterCard surcharges.

There are some unanswered questions, however.  The first is whether the American Express settlement with ultimately be finally approved.  The District Court will not hold a final approval hearing until September 2014.  Given the Visa and MasterCard approvals, it seems safe to bet on final approval.  Yet, final approval has not yet been had.  Second, when will the American Express rules on surcharging take place, and what will the exact language of the rules look like?  Visa and MasterCard enacted the rule changes almost a year before final approval, but American Express has not agreed to this.  Therefore, we may be seven months away from the rule changes of American Express being implemented.  These and other questions will remain until final approval, and then a publishing of the new rules and regulations of American Express.

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2 Responses to “American Express Follows Visa and MasterCard in Allowing a Surcharge on Credit Card Transactions”

  1. Gerry Gilbert says:

    Just got an email from American Express saying they had prevailed on appeal What is the effect on the ability to charge AMEX users?

  2. Lancey Baskett says:

    Hello,

    Please advise what the law is for surcharges for B2B transactions by state. Does it matter what state your company is in vs. where the customer is? Is there a hard cap % that can be surcharged?

    Thank you.

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