MONEY credit cards

AmEx’s Battle With the Feds Could Mean Lower Costs for Credit-Card Users

The American Express Co. logo, along with those of Visa Inc. and Mastercard Inc., are displayed in a shop window in New York, NY
Scott Eells—Bloomberg via Getty Images

American Express is facing off against the Justice Department today in a court battle that could shape the future of the credit card industry.

The suit, which concerns the fees merchants pay every time a customers uses plastic, is the culmination of a four-year war between federal authorities and the New York-based credit card giant. Its outcome won’t just affect the way American Express does business, but will likely impact consumers at the checkout counter as well.

Currently at stake is AmEx’s “take it or leave it” policy. Every time a customer pays with a credit card, the merchant must pay a processing fee, generally between 2% and 3% of the total purchase. American Express — which, according to the government, charges the highest merchant fees of any card network — forbids its merchant partners from offering customers incentives to use cards that are cheaper for the vender to accept.

The Department of Justice argues that the policy is anti-competitive because AmEx—which accounts for 26% of all money transacted through credit cards in the U.S.—is too important for most businesses to drop. It also claims customers, even those who use a different card, end up paying for AmEx’s higher rates because merchants compensate by increasing prices.

American Express, of course, disagrees. The company says it is too small to have an anti-competitive effect on the market. Court documents show that there were 53.6 million AmEx cards in circulation in 2013, compared to 178 million MasterCards and 254 million U.S.-issued Visa cards. It also argues these higher fees are necessary to provide merchants with services like fraud reduction programs, financing and marketing, and data analytics.

This is the latest battle in a four-year-old war over credit-card company business practices. In 2010, the Justice Department filed a lawsuit against MasterCard, Visa, and American Express for various merchant restrictions that the department found ultimately result in consumers paying more for their purchases. Visa and MasterCard quickly settled, later agreeing to a record-high $5.7 billion antitrust settlement with U.S. merchants over alleged fee fixing. But AmEx held out. In 2013, it reached a separate peace with merchants, allowing them for the first time to add a surcharge to AmEx purchases as long as they added the same charge to all credit-card transactions — the “take it or leave it” policy. But the settlement failed to satisfy the Justice Department, which now seeks to force AmEx into the same deal it cut with Visa and MasterCard.

For AmEx, the stakes are high. Merchant fees make up 65% of the company’s revenues, and it depends on high processing rates to offer its customers benefits like discounts and frequent-flyer miles. A loss would allow merchants to offer customers incentives for using a competitor’s card, and could cut into AmeEx’s profits by pushing the company to lower its merchant fees.

For consumers, a D.O.J. victory could potentially mean lower prices. Many businesses have historically priced in credit-card processing fees by raising the cost of their goods by 1% to 3%. Past settlements have allowed merchants to pass on these fees directly to credit card users, theoretically sparing cash and debit customers from having to share in the cost of accepting credit cards. However, many have questioned whether merchants are actually passing their savings onto consumers.

If American Express loses, merchants would be allowed to offer additional discounts to credit-card users with cards that charge lower fees. This won’t pacify those who say customers are paying the same prices as before plus new credit-card processing fees, but it does mean certain credit-card users might pay less than others.

Don’t expect AmEx to give up. The company may “need those rules in place to remain competitive with Visa and MasterCard,” Darren Bush, an antitrust law expert at University of Houston Law Center, told Bloomberg. “They’re willing to put more on the line.”

TIME Department of Justice

Ted Cruz: Holder Must Appoint IRS Special Prosecutor or Expect to Be Impeached

Eric Holder
Attorney General Eric Holder testifying on Capitol Hill in Washington, Jan. 29, 2014. J. Scott Applewhite—AP

Sen. Ted Cruz (R-Texas) added that the Justice Department is “the most partisan” in its history.

Attorney General Eric Holder must appoint a special prosecutor to investigate IRS targeting of conservative groups or expect to face impeachment proceedings, Sen. Ted Cruz (R-Texas) said on the chamber floor Thursday.

“When an Attorney General mocks the rule of law, when an Attorney General corrupts the Department of Justice by conducting a nakedly partisan investigation to cover up political wrongdoing that conduct by any reasonable measure constitutes high crimes and misdemeanors,” said Cruz. “Attorney General Eric Holder has the opportunity to do the right thing. He could appoint a special prosecutor with meaningful independence who is not a major Obama donor.”

The donor Cruz is referring to is Justice Department prosecutor Barbara Bosserman, who has given $6,750 to the Democratic Party and President Obama over the past ten years, according to the Washington Post. Bosserman has been chosen to lead the Justice Department probe into the IRS.

Cruz and other conservatives are dismayed that the Justice Department has yet to indict anyone 13 months after the IRS admitted that it targeted nonprofit political advocacy groups with the terms “tea party” or “patriot” in their names from 2010 to 2012.

Finance Committee Chairman Sen. Ron Wyden (D—Ore.) took to the floor after Cruz’s speech to object to the call for a special prosecutor, saying that there have been five IRS investigations either concluded or ongoing and another could add “significant cost” to the taxpayer. He also said the call was “premature” given that his committee’s report, conducted with Sen. Orrin Hatch (R-Utah) and his staff, is “almost finished.”

The House of Representatives has impeached only one cabinet official in its history, Secretary of War William Belknap in 1876. He was acquitted in his Senate trial.

MONEY stocks

WATCH: Insider Trading is More Widespread Than You Thought

According to a new study, nearly 25 percent of all public company deals involve some insider trading.

TIME Companies

U.S. Charges Credit Suisse Over Tax-Fraud Scheme

SWITZERLAND-US-BANKING-BUSINESS-CREDITSUISSE
Fabrice Coffrini—AFP/Getty Images

Credit Suisse pleaded guilty to federal criminal charges Monday for helping clients avoid tax payment by sending money overseas. The global banking giant will pay a total of $2.6 billion in penalties

The Swiss bank Credit Suisse pleaded guilty Monday to helping U.S. citizens commit tax evasion over the course of several decades, the Department of Justice announced. Credit Suisse will pay the Department of Justice, the Federal Reserve and the New York State Department of Financial Services a total of $2.6 billion in penalties, the largest payment ever in a U.S. criminal tax case. The banking giant is the first global financial institution to face a criminal conviction from U.S. authorities in more than a decade, Bloomberg reports.

Credit Suisse bankers aided thousands of wealthy Americans in concealing their money from U.S. authorities, the Department of Justice said. The bank helped American clients set up shell accounts to shuttle their money overseas and then solicited false IRS documents to make the accounts seem legitimate. According to a U.S. Senate subcommittee report released in February, Credit Suisse recruited new clients at bank-sponsored events, like golf tournaments in Florida and a gala in New York. In one instance, a Credit Suisse employee handed a client secret bank statements hidden in a copy of Sports Illustrated during a breakfast meeting. Credit Suisse had 22,000 U.S. customers with about $13.5 billion in their Swiss accounts in 2006, the “vast majority” of which was undeclared to U.S. authorities, according to the report.

“This case shows that no financial institution, no matter its size or global reach, is above the law,” Attorney General Eric Holder said announcing the conviction. “Credit Suisse conspired to help U.S. citizens hide assets in offshore accounts in order to evade paying taxes. When a bank engages in misconduct this brazen, it should expect that the Justice Department will pursue criminal prosecution to the fullest extent possible, as has happened here.”

As part of its deal, Credit Suisse must disclose its cross-border activities and cooperate in requests for account information from the U.S. government. The bank must also provide info about other banks that helped transfer funds into secret accounts and close the accounts of Americans who improperly report their assets to the U.S. government.

The move comes as part of an overall crackdown by the Department of Justice on offshore bank accounts. As part of the same investigation, the Department of Justice has indicted eight Credit Suisse executives since 2011. Two of them have pleaded guilty to criminal acts.

Credit Suisse earned $2.6 billion in profits in 2013 and generated $28.3 billion in revenue.

TIME Congress

Rep. Michael Grimm Will Face Criminal Charges, Lawyer Says

Michael Grimm
In this May 9, 2012 file photo, Rep. Michael Grimm, R-N.Y., speaks at a news conference on Capitol Hill in Washington. Grimm is facing criminal charges from federal prosecutors, his lawyer said on Friday, April 25, 2014. Jacquelyn Martin—AP

The FBI has been investigating Congressman Michael Grimm's business dealings for at least two years, but the specific charges have not been made public. Grimm's lawyer called the investigation "a politically driven vendetta"

A lawyer for U.S. Rep. Michael Grimm said Friday his client is facing criminal charges from federal prosecutors amid a probe into campaign finance violations, the Associated Press reports.

“After more than two years of investigation plagued by malicious leaks, violations of grand jury secrecy, and strong-arm tactics, the U.S. Attorney’s Office has disclosed its intent to file criminal charges against Congressman Grimm,” attorney William McGinley said in the statement. “When the dust settles, he will be vindicated.”

McGinley called the investigation “a politically driven vendetta,” the New York Times reports.

Grimm, a former Marine and FBI agent who represents Staten Island and parts of Brooklyn, New York, has drawn allegations of campaign violations since his first run in 2009 and 2010. Grimm gained attention in January after telling a local news inquiring about the allegations after the State of the Union, “I’ll throw you off this f—g balcony.” He later apologized for the incident, saying, “I lost my cool, and it shouldn’t have happened.”

Last November, the House Ethics Committee announced that it was deferring its investigation into possible campaign finance violations to the Justice Department.

Both the FBI and U.S. Attorney’s office declined to comment on the expected charges.

[AP]

TIME justice

Low-Level Drug Convicts Get New Route to Ask Obama For Clemency

The Obama Administration opens a door for non-violent drug offenders to reduce their sentences

Non-violent federal inmates who have served at least 10 years of their prison term are eligible to participate in a new initiative to send more clemency requests to President Barack Obama, the Department of Justice announced Wednesday.

The Obama Administration has been working for years to reduce the sentencing disparities between convictions for crack cocaine and powder cocaine, but sentencing legislation updated in 2010 was not made retroactive. Obama recently granted commutations to eight crack-cocaine offenders who were serving lengthy sentences, but there are thousands more in similar positions, some of who are expected to qualify under the expanded criteria for clemency announced Wednesday. Under the 2014 Clemency Initiative, non-violent, low-level, federal prisoners who would have received a lower sentence if convicted today and have served 10 years in prison with good conduct can be identified and seek clemency through the Bureau of Prisons, Deputy Attorney General James Cole said.

“These defendants were properly held accountable for their criminal conduct,” Cole said. “However, some of them, simply because of the operation of sentencing laws on the books at the time, received substantial sentences that are disproportionate to what they would receive today.

Officials said the new initiative will streamline the process of clemency requests and identify more candidates for Obama to consider. They said the initiative will keep public safety in mind, reiterating that clemency does not mean prisoners are being pardoned for their crimes. “Even low-level offenders cause harm to people through their criminal actions, and many need to be incarcerated,” Cole said.

A number of pro-bono lawyers and organizations, including the National Association of Criminal Defense Lawyers, Families Against Mandatory Minimums, the American Bar Association, and the American Civil Liberties Union have also agreed to work with prisoners who fit the criteria and request legal assistance. The groups praised the administration’s shift on sentencing, while noting there are many other federal inmates whose sentences are disproportionate to their crimes.

“The doors of the Office of the Pardon Attorney have been closed to petitioners for too long,” said Mary Price, FAMM General Counsel. “This announcement signals a truly welcome change; the culture of ‘no’ that has dominated that office is being transformed. We stand ready to assist in any way we can to support petitioners and bring their cases to the attention of the President.”

TIME Foreign Policy

Federal Judges Order Release of Targeted Killing Docs

Anwar al-Awlaki, a U.S.-born cleric linked to al Qaeda's Yemen-based wing, gives a religious lecture in an unknown location in this still image taken from video released by Intelwire.com on Sept. 30, 2011.
Anwar al-Awlaki, a U.S.-born cleric linked to al Qaeda's Yemen-based wing, gives a religious lecture in an unknown location in this still image taken from video released by Intelwire.com on Sept. 30, 2011. Ho New—Reuters

The documents include a memo that justifies the 2011 killing of Anwar al-Awlaki in Yemen

Federal judges ordered the U.S. government on Monday to release parts of a memo detailing why it targeted and killed an American who had joined al-Qaeda in 2011.

The order overruled a previous decision last year allowing the government to withhold the documents, which explain the targeted killing of Anwar al-Awlaki in a drone strike in Yemen three years ago. The United States Court of Appeals for the Second Circuit ruled that the Justice Department “waived its right to keep the analysis secret” after it released a “white paper” justifying the policy of monitoring Americans involved in terrorist activity on foreign soil for targeting and execution, the New York Times reports.

“Whatever protection the legal analysis might once have had has been lost by virtue of public statements of public officials at the highest levels and official disclosure of the D.O.J. White Paper,” Judge Jon O. Newman said. The Justice Department released the “white paper” after it was reported by NBC News.

The government may redact parts of the memo, the Times reports. It is unclear when these will have to go public. The case is a result of Freedom of Information Act lawsuits filed by the Times and two of its reporters, and the American Civil Liberties Union. The government can still appeal.

[NYT]

TIME justice

Holder: U.S. To Make More Convicts Eligible for Presidential Clemency

Attorney General Eric Holder speaks at a press conference on April 1, 2014 in New York.
Attorney General Eric Holder speaks at a press conference on April 1, 2014 in New York. Andrew Burton—Getty Images

Attorney General Eric Holder expects "thousands" of prisoners to apply for the reduced sentences as a result of new rules that would expand the pool of eligibility, a bid that would also lower the number of prisoners serving long sentences due to federal drug laws

The Obama Administration continued its push to reduce the number of prisoners serving long sentences as a result of the nation’s federal drug laws on Monday with an announcement by Attorney General Eric Holder describing new rules that would expand the pool of convicts eligible to apply for presidential clemency.

In a video released by the Department of Justice, Holder said they will expand the existing criteria government attorneys use to consider which offenders may be eligible for clemency. Later this week Deputy Attorney General James Cole will announce the new criteria, which Holder expects will lead thousands to apply to receive reduced sentences.

“This new and improved approach will make the criteria for clemency recommendation more expansive,” Holder said. “This will allow the Department of Justice and the president to consider requests from a larger field of eligible individuals.”

Throughout 2013, the Obama Administration began taking a piecemeal approach to reforming the nation’s drug laws as a part of Obama’s “Smart on Crime” initiative. In late 2013, Obama commuted the sentences of eight crack-cocaine offenders who had been serving lengthy sentences that would have been shortened under updated legislation. And last week, Obama commuted the sentence of another former drug prisoner whose sentence was lengthened as a result of a typo.

Former pardon attorneys and experts have said many of prisoners with similar cases are currently serving lengthy sentences, and Holder said Monday he expects “thousands” of applications for clemency as a result of the expanded criteria. Both the White House and the Justice Department have so far declined to estimate the number of clemencies the new criteria and increase in applications could produce.

In order to keep up with the influx of applications, Holder says the Department of Justice will assign more lawyers to review the applications. “As a society, we pay much too high a price whenever our system fails to deliver the just outcomes necessary to deter and punish crime, to keep us safe, and to ensure that those who have paid their debts have a chance to become productive citizens,” Holder said. “Our expanded clemency application process will aid in this effort. And it will advance the aims of our innovative new Smart on Crime initiative – to strengthen the criminal justice system, promote public safety, and deliver on the promise of equal justice under law.”

 

TIME justice

Holder Seeks $15 Million to Train Cops for Mass Shootings

Attorney General Eric Holder speaks at a press conference on April 1, 2014 in New York.
Attorney General Eric Holder speaks at a press conference on April 1, 2014 in New York. Andrew Burton—Getty Images

Attorney General Eric Holder has asked Congress to approve $15 million in special funds specifically to train law enforcement personnel for mass shooting situations in the wake of recent shootings at Fort Hood and the Jewish community center near Kansas City

Attorney General Eric Holder called on Congress Tuesday to approve $15 million of special funds to help train law enforcement for mass shooting situations.

Holder’s request comes in the wake of recent shootings at Fort Hood in Texas and a Jewish Community Center in Kansas amid a growing sense that mass shootings are on the rise in the United States. Three people were killed in each shooting. Holder said active shooter incidents have tripled in frequency since 2009.

“Today, I am urging Congress to approve President Obama’s request for $15 million for active shooter training and other officer safety initiatives, “ Holder said in a recorded statement. “This critical funding would help the Justice Department ensure that America’s police officers have the tools and guidance they need to effectively respond to active shooter incidents whenever and wherever they arise.”

TIME hate crimes

U.S. Police to Get Transgender Training

San Francisco Celebrates Gay Pride With Annual Parade
In this file photo from 2008, members of the Hayward, California police department take part in the 38th Annual San Francisco LGBT Pride Celebration David Paul Morris—Getty Images

Officers to learn how to spot hate crimes and build trust with a community that is disproportionately at risk of abuse

The Justice Department has launched a program to train local police departments to better respond to transgender people, who disproportionately suffer from violence and abuse.

Launched Thursday, the initiative will help officers to identify hate crimes and foster trust within the transgender population. Law enforcement officials say many in the community are often reluctant to report such crimes, reports Associated Press.

“It’s clear that such a training is as necessary as it is overdue,” says Associate Attorney-General Tony West. “Because too often, in too many places, we know that transgender victims are discouraged from reporting hate crimes and hate violence due to their past negative interactions with and perceptions of law enforcement.”

[AP]

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