Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Hawaiian Airlines alleges Visa, MasterCard conspired with member banks to charge supracompetitive fees, (Nov 20, 2013)

By Tobias J. Gillett, J.D., LL.M.

Hawaiian Airlines has filed a complaint in the federal district court in Brooklyn, alleging that Visa and MasterCard colluded with their member banks to impose rules on the merchants that suppressed competition between the banks for merchant acceptance of their credit and debit cards, causing the merchants to pay supracompetitive fees to the banks (Hawaiian Holdings, Inc. v. Visa, Inc., November 15, 2013).

Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc., which provide commercial airline and related services, allege that they properly elected to exclude themselves from the class action settlement pending in In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, Case No. 05-MDL-1720.

According to the complaint, Visa and MasterCard initially imposed interchange fees—fees paid by merchants to issuing banks in connection with each transaction in which the issuing bank’s card is used—to pay for the costs of transferring transactional paper between acquiring and issuing banks and to induce banks to issue cards to cardholders and obtain merchants for the card associations. However, the complaint alleges that the market has matured since then, that banks would now find it in their interest to issue Visa and MasterCard credit cards even without the interchange fees, and that the fees are now not necessary to maintain the credit card networks.

Instead, Visa, MasterCard, and their co-conspirator member banks have allegedly ensured the continued flow of interchange fees through rules imposed on merchants. These rules bar merchants from imposing surcharges on payment card transactions to reflect cost differences among payment methods or steer consumers to cheaper payment forms; prohibit them from granting discounts to consumers for using cards issued by a particular issuing bank or providing a discount for the use of payment cards other than those issued by Visa or MasterCard; require merchants to accept all Visa or MasterCard products if they accept any of them; require merchants to accept Visa or MasterCard payment cards at all of their outlets if they offer them at any of their outlets; prohibit merchants and member banks from bypassing the Visa or MasterCard system for clearing, authorizing, or settling transactions, even if the issuing and acquiring banks are the same; and prohibit banks that process any other card network transaction from also processing other card networks’ transactions.

According to complaint, the rules prevent merchants from steering consumers to lower-cost payment products and permit Visa and MasterCard to maintain “anticompetitively high prices.” In the absence of the rules, merchants would be able to refuse to accept higher cost cards, charge surcharges for higher cost cards, or offer discounts for using cheaper payment methods, forcing Visa, MasterCard, and issuing banks to lower their prices or face a loss of transaction volume.

The rules allegedly have allowed MasterCard and Visa “to dramatically and with impunity raise the interchange fees” paid by merchants. Those interchange fees have purportedly led to higher retail prices, created incentives for issuing banks to encourage the use of high-cost payment cards, distorted competition between credit cards in favor of products with higher interchange fees, and discouraged new or existing competitors from attempting to increase their transaction volume by offering lower prices. The collective setting of the interchange fees also allegedly restricted competition among member banks, which would otherwise negotiate individually with merchants.

The complaint asserts claims for conspiracy in restraint of competition under Section 1 of the Sherman Act, monopolization, attempted monopolization, and violation of California antitrust and consumer protection law. If the court were not to apply California law, the complaint alleges violation of the consumer protection and unfair competition laws of 28 states and the District of Columbia.

The complaint seeks a judgment that Visa and MasterCard have violated the relevant laws; contingent on whether the settlement in In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation is approved, permanent injunctive relief; damages and treble damages for the period from January 1, 2004 through November 27, 2012; damages and treble damages for the period after November 27, 2012 if the release or injunctive relief associated with the settlement is invalidated or modified in any way; costs of suit; attorneys’ fees; and any other just and proper relief.

Following the settlement in In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, numerous merchants expressed dissatisfaction with the proposed terms. The National Retail Federation stated that the settlement was “unfair” and did “virtually nothing” to protect customers and address retailers’ concerns about credit card swipe fees charged by Visa and MasterCard. The National Grocers Association announced that it would opt out and object to the settlement because it failed to achieve reform of the swipe fees and payment rules, and would “only make matters worse for consumers and merchants.” The National Association of Convenience Stores said it would provide the credit card companies “with the tools to continue to shield swipe fees from market forces.” The National Restaurant Association “strongly object[ed]” to the settlement, and claimed it would protect neither its members nor consumers. The National Community Pharmacists Association registered “strong opposition” to the settlement, stating that it fell “woefully short” of achieving necessary reform.

On December 10, 2012, the U.S. Court of Appeals in New York City denied a request by Home Depot U.S.A., Inc. for expedited review of the preliminary approval of the settlement. Visa has filed actions for declaratory judgment that it is not liable to objectors for antitrust damages, including an action against retailer Wal-Mart Stores, Inc. Other merchants, including a group headed by Delta Airlines, have filed their own actions against Visa and MasterCard.

The case is No. 1:13-cv-06370-JG-JO.

Attorneys: Jason A. Zweig (Hagens Berman Sobol Shapiro LLP) for Hawaiian Holdings, Inc.

Companies: Hawaiian Holdings, Inc.; Hawaiian Airlines, Inc.; Visa, Inc.; MasterCard, Inc.

News: Antitrust NewYorkNews