San Francisco Sues Amex Over Credit Card Fees

SAN FRANCISCO — The city is taking legal action against American Express for charging higher credit fees and seeks billions of dollars in restitution for the state.

San Francisco City Attorney Dennis Herrera is suing American Express Co. in a statewide consumer protection action over anti-competitive and illegal merchant restraints alleged to be "responsible for billions of dollars in excessive and improper costs" borne directly by retailers and, indirectly, by all California consumers, according to a release from his office.

Herrera's civil suit follows a federal court decision in April that ordered American Express to drop many rules that prohibit merchants from asking customers to use less-expensive credit cards, Bloomberg reported.

The company was also told by a federal judge in Brooklyn, N.Y., not to bar businesses from offering discounts or other incentives to steer customers to other cards. American Express is appealing the ruling, the report added.

As a result, Herrera's suit alleges, Amex owes billions in civil penalties and restitution to merchants in the state under California's Unfair Competition Law.

"The party is over for American Express, and the bill is coming due in California," Herrera said.

According to Herrera, American Express has received a 3-percent fee on each charge card transaction, higher than fees charged by competitors like Visa Inc. and MasterCard Inc. This has resulted in approximately $2.25 billion in fee payments annually by California merchants.  

At the same time, according to Herrera's complaint, "Amex prohibited its participating merchants from taking any step to encourage consumers' use of less costly payment methods, including cash."

"We don't believe the suit has merit" and will fight it, Marina Norville, a spokeswoman for American Express, told Bloomberg in an email.

Herrera's complaint, filed in San Francisco Superior Court on Nov. 6, seeks a judicial declaration that Amex's merchant restraints violate California law and an injunction barring the company from enforcing its illegal contractual provisions.  

California's Unfair Competition Law authorizes civil penalties of $2,500 for each violation, which Herrera contends equates to each charge card transaction. The complaint also seeks restitution for California merchants in an amount to be determined at trial as well as attorneys' fees and costs of the suit.