Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Merchants allege Visa and MasterCard conspired to fix credit/debit card interchange fees, (Dec 4, 2014)

By Linda O’Brien, J.D., LL.M.

Visa, Inc. and MasterCard Incorporated and their issuing and acquiring banks have conspired to fix credit card interchange fees paid by retail merchants, according to a complaint filed in the federal district court of Marshall, Texas (Bass Pro Group, LLC v. Visa, Inc., December 3, 2014).

Bass Pro Group, Crocs, Inc., Ross Dress for Less, Inc., 1-800 CONTACTS, Inc., Ethan Allan Interiors, Inc., Joe’s Crab Shack., Scandinavian Airlines of North America, Inc., Westgate Hotel Company, Nine West Holdings, Tiffany and Company, Twin Liquors, Waffle House, Inc., and Williams-Sonoma, Inc. are merchants that operate retail apparel, sporting goods, jewelry, restaurants, hotels and resorts, cookware and home décor, wine and spirits, contact lenses, or airline businesses.

Visa, Inc. and Mastercard Incorporated are national bank card associations of member banks and financial institutions that issue credit and debit cards to consumers. 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 complaint alleges that banks that are members of Visa and MasterCard compete with each other in the issuance of credit and debit cards to consumers and earn income when card users select and use their cards. Visa and MasterCard have adopted nearly identical operating regulations that are agreed to by their member banks. These rules eliminate competition among member banks for merchant acceptance of credit and debit cards because Visa and MasterCard have as members nearly all the card issuers in the United States. The rules also constitute competitive restraints in the setting of “default” interchange fees, such as the Honor All Cards rules, the All Outlets rules, the No Discount rules, and the No Surcharge rules.

The setting of default interchange fees has effectively fixed the price of acceptance at a supra-competitive level and allows issuing banks to charge interchange fees in excess of the banks’ costs, the plaintiffs charged. 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. By continuing to agree and adhere to the competitive restraints, the member banks have deprived the market of actual or potential competition, the complaint states.

Although both Visa and MasterCard purport to set non-binding default interchange fees, acquiring banks that do not deduct the applicable interchange fee when submitting a transaction for authorization, clearance, and settlement are subject to fines assessed by Visa and MasterCard. Thus, these rules remove any independent competition among the issuing banks in the setting of interchange fees.

According to the complaint, Visa and MasterCard jointly have market power in the market for merchant acceptance of credit and debit cards in the United States. Visa has a 47 percent share of the dollar volume of credit card transactions in the United States, while MasterCard has a 26 to 28 percent share of the credit card market. Moreover, Visa and MasterCard combined comprise over 80 percent of all debit purchase volume. Consequently, Visa and MasterCard have used their market power to impose default interchange fees and competitive restraints on merchants.

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

In a related action, a specialty apparel retailer has filed a complaint 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 (rue21, inc. v. Visa, Inc., December 2, 2014). The plaintiff asserted 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 implementing a scheme not to compete for merchant acceptance of their payment cards.

The cases are No. 2:14-cv-01093 and 1:14-cv-07018.

Attorneys: Richard E. Norman and R. Martin Weber, Jr. (Crowley Norman LLP), Jeffrey J. Angelovich (Nix, Patterson & Roach, LLP), William Curtis Webb and Fields Alexander (Beck Redeen LLP), and Keith Butler (Strange & Carpenter) for the Texas plaintiffs. Ronald A. Giller (Gordon & Rees LLP) for rue21, inc.

Companies: Bass Pro Group, LLC; Crocs, Inc.; Ross Dress for Less, Inc.; 1-800 CONTACTS, Inc.; Ethan Allan Interiors, Inc.; Joe’s Crab Shack – Texas Inc.; Scandinavian Airlines of North America, Inc.; Westgate Hotel Company; Nine West Holdings; Tiffany and Company; Twin Liquors, LP; Waffle House, Inc.; Williams-Sonoma, Inc.; rue21, inc.; Visa U.S.A., Inc.; Visa International Service Association; Visa, Inc.; MasterCard Incorporated; MasterCard International Incorporated

News: Antitrust TexasNews NewYorkNews