WASHINGTON (10/5/10)--Visa and MasterCard announced a settlement agreement Monday with the Department of Justice (DOJ) and seven states over antitrust issues in their merchant acceptance rules involving merchants' "steering" consumers to less expensive payment forms. Meanwhile, DOJ also announced it had filed a similar antitrust lawsuit Monday against American Express Co. The DOJ said in the suit filed against AmExpress that the card company's rules it imposes on merchants that accept its cards are "anticompetitive" and "impede merchants from promoting or encouraging the use of a competing credit or charge card with lower card acceptance fees" (The Wall Street Journal and PaymentsSource Oct. 4). The Visa/MasterCard settlement did not involve any admission of wrong doing. The settlement is considered by some a victory for merchants, who have complained for years about the annual fees they pay to accept and process credit cards. The lawsuit against AmEx, which was filed in the U.S. District Court for the Eastern District of New York, stems from a DOJ review begun in 2008 of payment networks' rules. Most networks prohibit merchants from taking steps to steer consumers from using one brand's card instead of another to get lower interchange rates. AmEx, in a statement, said it has no intention of settling the case because the Justice Department is suing "a party proven not to have market power." Instead, said AmEx CEO Kenneth Chenault, the government's new approach "would hand an unfair advantage back to Visa and MasterCard." Visa said that as part of the settlement, it will allow U.S. merchants to offer discounts and other incentives to steer customers to a particular form of payment, including a specific network brand or to any card product, such as a "non-reward" Visa credit card. Reward cards cost merchants more, and merchants who agree to accept a company's cards must accept all of them, said the Journal. "The new rules will expand U.S. merchants' ability to discount for their preferred form of payment, though they will not be able to pick and choose amongst issuing banks." The settlement agreement does not address Visa's rule prohibiting U.S. merchants from surcharging customers, said Visa's press release. According to Josh Floum, general counsel at Visa Inc., "Visa has always allowed merchants to discount for cash and PIN-debit, and extending the ability to discount by network brand is a reasonable accommodation." He noted the settlement would not impact the ability to "continue growing our business by offering innovative payments products that consumers and merchants value above any others. The settlement gives U.S. merchants new tools to manage their acceptance costs while benefitting from the tremendous value electronic payments deliver." MasterCard General Counsel Noah J. Hanft noted, "Our discounting practices have long been more flexible than our major competitors' and have permitted merchants to discount for cash, checks, debit cards and other payment brands." Interchange fees has been a big topic in the U.S. Congress in recent years. Earlier this year, lawmakers passed a bill that, in part, allows the government to set interchange fees. The Credit Union National Association (CUNA) maintains that the fees are best set in the market and that the fees allow business costs, including the risk of consumer nonpaymentd, to be shared by the payments participants. CUNA also opposed the legislation on behalf of credit union members, arguing that such action could drive up consumer costs as well as limit consumer options, competition and technological innovation. This settlement and the new suit arrive as the Federal Reserve continues its work to implement the new law. Although credit unions with less than $10 billion in assets are exempt from interchange regulations the Federal Reserve Board is writing, CUNA is concerned that the law does not require the marketplace to accommodate higher fees for smaller issuers. CUNA advocates a two-tier interchange fee system to accommodate credit unions. CUNA and its Interchange Working Group are working to head off any unintended consequences of interchange regulation. (News Now July 28).