American Express (Amex) has recently found itself at the center of a legal battle after a group of merchants filed a lawsuit challenging the company’s “anti‑steering” rule. The rule, which prevents merchants from encouraging customers to use lower‑cost payment methods at the point of sale, has sparked debate over competition, consumer choice, and the balance of power between card networks and businesses. This article examines the origins of the anti‑steering provision, the merchants’ allegations, the current state of the litigation, Amex’s defense, and the broader implications for the payments ecosystem.
Background on the Anti‑Steering Rule
Card networks such as Visa, Mastercard, and American Express operate under a set of operating regulations that govern how merchants may interact with cardholders. One of these regulations is the anti‑steering rule, which expressly prohibits merchants from:
- Displaying signage that encourages customers to use a particular card brand over another.
- Offering discounts or surcharges that favor a specific network unless the practice is uniformly applied to all accepted cards.
- Providing verbal prompts at checkout that steer shoppers toward a lower‑cost payment option.
The rule originated from early antitrust settlements in the United States, where regulators sought to prevent card networks from using their market power to exclude competing payment methods. On top of that, over time, the networks incorporated anti‑steering clauses into their merchant agreements to preserve brand uniformity and protect the value of their rewards programs. While the rule applies to all major networks, American Express has been particularly vocal about enforcing it, citing its premium positioning and higher interchange fees as justification.
Merchant Allegations
The coalition of merchants—including retailers, restaurants, and service providers—claims that Amex’s anti‑steering rule violates federal antitrust laws and harms small businesses in several ways:
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Restriction of Price Competition
Merchants argue that by forbidding steered discounts, the rule prevents them from passing on savings achieved through lower‑cost payment methods to consumers. This, they say, inflates overall prices and reduces price transparency. -
Burden on Small Businesses
Small merchants often lack the negotiating power to secure favorable interchange rates. The anti‑steering rule, they contend, forces them to accept higher fees without the ability to offset those costs through targeted incentives Still holds up.. -
Limitation on Consumer Choice
By prohibiting prompts that inform customers about cheaper alternatives, the rule allegedly keeps shoppers unaware of potential savings, thereby undermining informed decision‑making. -
Anticompetitive Effect
The plaintiffs assert that the rule helps Amex maintain supra‑competitive interchange rates, effectively locking in a revenue stream that would be vulnerable to genuine price competition if steering were permitted.
The lawsuit, filed in the United States District Court for the Southern District of New York, seeks declaratory relief, an injunction barring enforcement of the anti‑steering provision, and damages for alleged overcharges dating back several years.
Legal Proceedings and Court Rulings
Initial Filings
The merchants submitted their complaint in early 2023, alleging violations of the Sherman Antitrust Act and requesting class‑action status to represent all U.S. merchants that accept American Express cards. The complaint highlighted internal Amex communications that, according to the plaintiffs, demonstrated a deliberate strategy to suppress steering practices.
Amex’s Motion to Dismiss
American Express responded with a motion to dismiss, arguing that the anti‑steering rule is a legitimate exercise of contractual freedom and does not constitute an unlawful restraint of trade. Amex emphasized that the rule applies uniformly to all merchants and is necessary to protect the integrity of its brand and rewards ecosystem It's one of those things that adds up. Worth knowing..
Court’s Preliminary Findings
In a September 2023 hearing, the judge denied Amex’s motion to dismiss, stating that the plaintiffs had pleaded sufficient facts to survive a preliminary challenge. The court noted that the anti‑steering rule could be examined under the “rule of reason” standard, which requires weighing anticompetitive effects against procompetitive justifications. The judge allowed the case to proceed to discovery, signaling that the merits of the claim would be scrutinized closely.
Discovery Phase
During discovery, both sides exchanged thousands of documents, including merchant agreements, internal pricing analyses, and marketing materials. Merchants produced data showing that stores that experimented with steered discounts experienced a measurable reduction in average transaction costs, while Amex presented studies suggesting that steering could confuse consumers and dilute brand loyalty.
Some disagree here. Fair enough.
Current Status
As of late 2024, the case remains in the pre‑trial phase. In real terms, both parties have filed motions for summary judgment, and a trial date has been set for early 2025. Legal observers anticipate that the outcome could influence how other card networks structure their steering policies, especially if the court finds the rule to be an unreasonable restraint of trade.
Amex’s Defense
American Express counters the merchants’ claims with several key arguments:
- Brand Protection – Amex asserts that its premium brand relies on consistent customer experience. Allowing merchants to steer customers away could erode the perceived value of its rewards program and diminish cardholder loyalty.
- Uniform Application – The anti‑steering rule applies equally to all merchants, preventing discriminatory practices that could favor larger retailers with greater bargaining power.
- Procompetitive Justifications – Amex argues that the rule encourages investment in innovation, security, and customer service, benefits that ultimately flow to merchants and consumers alike.
- Contractual Freedom – The company maintains that merchants voluntarily agree to the rule when signing their acceptance contracts, and that the agreement is a legitimate exercise of private ordering under contract law.
Amex also points to prior litigation involving Visa and Mastercard, where courts have upheld similar non‑steering provisions under the rule of reason, suggesting a precedent that favors the networks’ position Which is the point..
Potential Implications for the Payments Industry
If the court ultimately rules against American Express, the decision could trigger a ripple effect across the payment card landscape:
- Reevaluation of Network Rules – Other card brands may review and possibly relax their own anti‑steering clauses to avoid similar legal challenges.
- Increased Merchant use – Merchants could gain the ability to offer targeted discounts or
...promotions that incentivize the use of specific payment methods, potentially fragmenting the market and creating a more dynamic, but also more complex, pricing environment.
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Pressure on Reward Structures – Card networks might be compelled to rethink their rewards programs. If merchants can steer consumers toward lower-cost payment options, the value of premium rewards funded by merchant fees could diminish, leading to a potential recalibration of the entire consumer value proposition.
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Catalyst for Regulatory Scrutiny – A ruling against Amex could invite broader legislative or regulatory attention to the entire card network ecosystem, potentially leading to new rules aimed at increasing transparency and competition beyond the specific issue of steering.
Pulling it all together, the American Express anti-steering litigation stands as a critical test for the modern payments industry. It encapsulates a fundamental tension between the established model of card network governance and the evolving demands of merchants for greater autonomy and consumers for a more transparent marketplace. The court's decision will not merely resolve a contractual dispute; it will likely redefine the competitive landscape, influencing everything from the contracts merchants sign to the rewards consumers earn for years to come. The outcome will signal whether the industry's existing framework can withstand increased scrutiny or if it is on the cusp of a significant transformation toward a more open and contested market.
