American Express Company (AmEx) has been sued by San Francisco City Attorney Dennis Herrera, alleging illegal restraints on merchants.
The company has been alleged of being responsible for billions of dollars in excessive and improper costs.
The statewide consumer protection case in California follows a federal court decision that the company illegally restrained trade, as well as defied federal antitrust laws.
AmEx charged a 3% swipe fee on each card transaction, which is higher than that of rivals such as Visa and MasterCard. The Californian merchants paid about $2.25bn as swipe fees every year to the company, according to the complaint.
In addition, the global charge card giant has also been alleged of preventing its participating merchants from taking any measure to encourage consumers’ use of less costly payment methods, such as cash.
"Barred from assessing surcharges or offering discounts — or even expressing a simple preference for cash or competing cards — sellers’ uniform pricing mandates effectively forced all consumers to subsidize the high fees and generous rewards American Express continues to lavish on its generally affluent cardholders," the state attorney said in a statement.
The state’s unfair competition law authorizes civil penalties of $2,500 for every violation, which according to Herrera equates to each charge card transaction.
At the same time, the complaint also demands restitution for California merchants along with attorneys’ fees and costs of the suit.
Herrera commented: "The party is over for American Express, and the bill is coming due in California. The federal court ruling earlier this year merely confirms what millions of retailers, economists and U.S. Justice Department officials have known for years: American Express has rigged the game.
"They shook down merchants, stifled competition, and shifted costs for their extravagant member perks to even cash-paying consumers. It’s unfair, it’s illegal, and — under state law — it warrants tough penalties and restitution for California’s merchants."