Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Convenience store alleges Visa, MasterCard fixed credit/debit card interchange fees, (Sep 23, 2015)

By Linda O’Brien, J.D., LL.M.

A West Virginia convenience store chain has filed suit in the federal district court in Brooklyn, New York, alleging that Visa and MasterCard conspired with their member banks to impose unlawful and excessive interchange fees associated with credit and debit cards transactions (Go-Mart, Inc. v. Visa, Inc., September 22, 2015).

In its complaint, the merchant asserts that the defendants engaged in a conspiracy in restraint of trade by agreeing to collusively fix—at supra-competitive levels—the prices merchants paid to accept their respective payment cards and by implementing a scheme not to compete for merchant acceptance of their payment cards.

Go-Mart, Inc., is a convenience store chain based in West Virginia, which operates more than 100 stores in West Virginia and border areas of Virginia, Kentucky, and Ohio. Visa, Inc. and Mastercard Incorporated are national bank card associations of member banks and financial institutions that issue credit and debit cards to consumers.

The complaint alleges that banks that are members of Visa and MasterCard networks are independently owned businesses that compete with each other in the issuance of credit and debit cards to consumers. However, various rules and practices adopted by Visa and MasterCard, and agreed to by member banks, limit competition among member banks. Such rules include the adoption of “default” interchange fees, the Honor All Cards rule, the All Outlets rule, the No Discount rule, and the No Surcharge rule.

Interchange fees are imposed on retail merchants by Visa and MasterCard for the privilege of accepting an issuing bank’s card from a consumer as a means of payment. The Honor All Cards rule requires that a merchant accepting any Visa or MasterCard credit card must accept all such credit cards no matter which bank issued the card. The All Outlets rule requires merchants who accept Visa and MasterCard branded payment cards at any location to accept those cards at all of their locations. The No Discount rule precludes merchants from offering discounts to customers who use a particular payment card. The No Surcharge rule prohibits merchants from imposing a surcharge on consumers for the use of Visa and MasterCard branded payment cards. The setting of default interchange fees and these rules eliminate competition among issuing banks for merchant acceptance and constitutes price fixing among competitors, the complaint alleges.

But for these anticompetitive rules and practices, the market for consumer acceptance of payment cards would be significantly more competitive, according to the complaint. Merchants have paid significantly higher costs to accept Visa and MasterCard brand credit and debit cards than they would have if the member banks issuing the cards competed for merchant acceptance. The plaintiff has paid millions of dollars from 2004 to 2012 in interchange fees to issuing banks that are members of the Visa and MasterCard networks. These rules are not reasonably necessary to create efficiencies in the payment card market and there are less restrictive alternative means that would allow the defendants to achieve any claimed efficiencies.

Visa and MasterCard jointly have market power in the market for merchant acceptance of credit and debit cards in the United States. Visa and MasterCard combined comprise over 80 percent of all debit purchase volume as of 2013. Consequently, Visa and MasterCard have used their market power to impose default interchange fees and competitive restraints on merchants, the complaint states.

The lawsuit also alleges that in 2006, MasterCard made an initial public offering (IPO) of ownership shares to the public and to MasterCard member banks. The IPO did not change the fundamental nature of the combination or eliminate the anticompetitive rules. None of the member banks took steps to withdraw from the illegal combination that existed prior to the IPO. In 2008, Visa made an initial public offering (IPO) of ownership shares to the public and to Visa member banks. In the IPO, the member banks partially sold their ownership of Visa and restructured the governance of Visa. However, it did not change the fundamental nature of the combination or eliminate the anticompetitive rules. None of the member banks took steps to withdraw from the illegal combination that existed prior to the IPO.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act. The action seeks treble and compensatory damages, pre-judgment and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The cases are No. 1:15-cv-05488.

Attorneys: James M. Evangelista (Harris Penn Lowry LLP) for Go-Mart, Inc.

Companies: Go-Mart, Inc.; Visa U.S.A., Inc.; Visa International Service Association; Visa, Inc.; MasterCard Incorporated; MasterCard International Incorporated

News: Antitrust NewYorkNews