Md. Files Suit Against Major Credit Card Companies

Suit Challenges Rules that Prevent Merchant Discounts and Incentives

BALTIMORE (October 7, 2010)—Attorney General Douglas F. Gansler announced Monday that Maryland, the United States Department of Justice and six other states filed a civil antitrust lawsuit against American Express, Visa and MasterCard. The lawsuit, filed in the U.S. District Court for the Eastern District of New York, challenges the card networks’ rules that prevent merchants from offering consumers discounts or other incentives to use lower-cost cards for payment of goods and services.

Merchants who accept credit cards must pay a fee each time a consumer makes a purchase with a credit card, and different types of cards carry different fees. Merchants pass onto consumers the costs of credit card transactions by way of higher retail prices. The card networks’ rules that prohibit merchants from offering consumers incentives to use a lower-cost card cause merchants’ costs of doing business, and consumer prices, to rise.

At the same time, Maryland, the Department of Justice and the other states filed a proposed settlement with Visa and MasterCard that would require the two companies to allow merchants to offer discounts, incentives and information to consumers to encourage use of less costly cards. A merchant who accepts only Visa and MasterCard may take advantage of the relief immediately.

“The card networks’ rules make it impossible for merchants to negotiate lower rates, and they drive up consumer prices,” said Attorney General Gansler. “With this settlement and litigation, consumers will see a wider range of competitive prices for goods and services.”

Under the proposed settlement, Visa and MasterCard are required to allow their merchants to:

— offer consumers an immediate discount or rebate or a discounted product or service for using a particular card network, low-cost card within that network or other form of payment;

— express a preference for the use of a particular card network, low-cost card within that network or other form of payment;

— promote a particular card network, low-cost card within that network or other form of payment through posted information or other communications to consumers; and,

— communicate to consumers the cost incurred by the merchant when the consumer uses a particular credit card network, type of card within that network, or other form of payment.

The litigation against American Express seeks to allow merchants that accept American Express to offer the same discounting and other incentives to American Express card users as the proposed settlement with Visa and MasterCard allows.

The states of Connecticut, Iowa, Michigan, Missouri, Ohio and Texas also joined the lawsuit.

Source: Office of Attorney General Douglas F. Gansler

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