Appeals Court Continues To Rule Against AmEx in Credit Card Fee Litigation Suit

According to a recent ruling handed down by a federal court of appeals, financial services giant American Express will not be able to utilize an arbitration clause to thwart an antitrust lawsuit brought upon it by an organized group of some of its merchant customers. It is the third time the court has reviewed the case. The initial lawsuit was filed against AMEX in 2003 over the fees the lender charges merchants to accept its charge and credit cards and several rulings have been made on the matter since. A representative for American Express announced the company`s intention to appeal this latest decision.

For years, merchant fees within the credit card industry have caused retailers a lot of grief. Many complain the heavy burden of merchant fees make it necessary for them to raise their prices, making the cost of goods and services much more expensive for their customers.

AMEX has employed the use of a mandatory arbitration clause ever since 1999, which means that all merchants wanting to do business with the payment processor must waive their rights to participate in a class-action lawsuit against the company in order to do so.

However, the court of appeals deem the clause to be invalid in the case of the 2003 lawsuit because "it encroaches on merchants` rights under federal antitrust laws," according to Reuters.

"Here plaintiffs have demonstrated that their statutory rights cannot be vindicated through individual arbitration," Reuters reports that Judge Rosemary Pooler wrote on behalf of the panel, which consisted of two judges.

The plaintiffs consist of restaurant and retail merchants from New York and California in combination with the National Supermarkets Association. What their accusations against AMEX entail is that the company used a variety of different tactics to coerce merchants into paying trumped up fees for all transactions involving AMEX charge cards that directly violated federally mandated antitrust laws.

The argument made to counter the suit by American Express was that merchants, according to their agreed-upon contracts, were obliged to pursue the resolution of any disputes one by one in private arbitration. Initially, in 2006, the district court upheld the arbitration clause, only to overturn that decision at a later date. Ever since, the court has ruled that the merchants are allowed to sue.

An attorney representing the merchants, Gary Friedman, remarked that decision is "a solid and unremarkable application of clear law, and it comes as no surprise," according to Reuters.

Doug Nicholas

Doug Nicholas, a financial consultant by profession with a Masters degree in International Business from Brown University, is also an ardent writer. Though he has a full time job at one of the companies listed on Wall Street, he does manage to squeeze in time to follow his passion. He puts his ideas to words in his articles related to finance and business.