Visa, MasterCard still fixing card fees -merchants

Wed Nov 2, 2011 5:10pm EDT

* Eight years on, stores again claim antitrust violations

* Plaintiffs say credit-card rules cost $50 bln yearly

* Card companies deny anti-competitive effects

By Jessica Dye

NEW YORK, Nov 2 (Reuters) - Nearly eight years after Visa Inc and MasterCard Inc agreed to pay more than $3 billion to resolve allegations that they conspired to raise stores' fees for processing their payment cards, merchants returned to court on Wednesday to argue that the card companies still maintain a costly stranglehold on interchange networks.

U.S. District Judge John Gleeson heard oral arguments in Brooklyn federal court from a slate of lawyers representing the credit card companies, their issuing banks and the merchants over whether to proceed to trial on the latest round of antitrust allegations against the card companies' and banks' interchange networks, which process customers' credit- and debit-card payments to stores.

The case raises similar claims to another consolidated set of cases in Brooklyn federal court, first filed by retailers including Wal-Mart and Sears in 1996. Visa and MasterCard settled those cases with a $3.05 billion payout to merchants. But that settlement only covered conduct before Jan. 1, 2004; according to the plaintiffs in the latest round, the companies' anti-competitive conduct has continued virtually unchanged since then.

This time around, the plaintiffs -- who include D'Agostino Supermarkets Inc and Payless ShoeSource -- contend that the card companies' liability could be much higher. According to their estimates, monetary damages could run into the tens of billions of dollars -- a figure the companies deny.

Craig Wildfang, an attorney representing a proposed class of stores that accept Visa and MasterCard cards across the country, said that rules preventing stores from offering customers discounts for paying in cash or steering them toward less costly forms of payment, such as cash or competitors' cards, are costing merchants an estimated $50 billion each year.

'OBSTRUCTS AND ELIMINATES' COMPETITION

The credit card companies and issuing banks such as JPMorgan Chase & Co and Citibank NA -- both among those named as defendants in the lawsuits -- are "acting in concert" to keep merchants from finding ways to offset or mitigate credit-card costs, Wildfang said, and preventing alternative payment forms from making headway in the narrow payment-services market.

Paul Slater, an attorney representing plaintiffs including QVC IncSupervalu Inc in individual lawsuits against the companies, told Gleeson that the effect of the card rules has been to "stop merchants from using price signals at the point of sale to direct the customer" to other payment forms.

"The inability of the merchants to price the use of Visa and MasterCard cards eliminates horizontal competition and obstructs and eliminates interbrand competition," Slater said.

The card companies and banks maintained that the interchange rules are legal and "reasonably necessary" to provide customers with certainty about how their card payments will be processed, according to Peter Greene, a lawyer for JPMorgan.

"The level of interchange is not the result of any anti-competitive conduct," Greene said, comparing the companies' actions "to a sports league setting up the rules of the game," rather than conspirators acting to fix the game.

INCREASED OUTPUT 'EVIDENCE OF COMPETITIVE' PRODUCT

Robert Vizas, an attorney for Visa, argued that despite the plaintiffs' allegations that card companies' behavior has stifled payment markets, the growing use of debit and credit cards at stores around the country demonstrates that the opposite is true.

"If you can increase your output, that is at least equally evidence of a competitive as opposed to an anti-competitive product," Vizas said.

Gleeson reserved his ruling on the summary judgment motions following the arguments. Discovery has already been completed in the case, resulting in the production of about 82 million pages of documents and nearly 500 witness depositions, according to court filings.

Visa and MasterCard reached a settlement last year with the U.S. Department of Justice over their interchange-fee practices. The companies agreed to allow merchants to offer incentives to customers who use a particular payment method and to let customers know the costs incurred by using a particular method, such as a Visa card.

The case is In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York, no. 05-1720.

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