Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Restaurants allege Visa and MasterCard conspired to fix credit/debit card interchange fees, (Jan 20, 2015)

By Linda O’Brien, J.D., LL.M.

Visa, Inc. and MasterCard Incorporated and their member banks have conspired to restrain trade by fixing, at supra-competitive levels, interchange fees paid by full service and fast food franchise restaurants for acceptance of credit and debit cards, according to a complaint filed in the federal district court of Brooklyn, New York (Quality Dining, Inc. v. Visa, Inc., January 16, 2015).

Quality Dining, Inc., Grayling Corporation, Bluewater Grille, LLC, Grady’s American Grill Restaurant Corporation, Bravogrand, Inc., Full Service Dining, Inc., and Southwest Dining, Inc. are large franchise restaurant companies that accept Visa and MasterCard credit and debit cards for payment at their respective restaurants.

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 merchant banks do not compete for merchant acceptance of the cards they issue. Instead, the member banks have ceded to Visa and MasterCard the decision-making with respect to the terms upon which they will allow merchants to accept the payment cards they issue. Visa and MasterCard are alleged to have adopted nearly identical rules, which are agreed to by the member banks, and to eliminate competition among members to independently compete for merchant acceptance. The rules that constitute competitive restraints are the setting of “default” interchange fees, the Honor All Cards rules, the All Outlets rules, the No Discount rules, and the No Surcharge rules, the complaining restaurants claim.

The rules, individually and in combination, allegedly preclude merchants from benefitting by competition and the setting of default fees effectively fixes those fees at supra-competitive levels. 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. As a result, these rules remove any independent competition among the issuing banks in the setting of interchange fees, the complaint charges.

Visa and MasterCard jointly have market power in the market for merchant acceptance of credit and debit cards in the United States, according to the complaint. Visa has a 43 to 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. Combined, Visa and MasterCard comprise more than 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 plaintiffs assert claims for violations of Section 1 of the Sherman Act. The action seeks compensatory and treble damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 1:15-cv-00264.

Attorneys: Jonathan S. Lawson (LaDue Curran & Kuehn LLC) for Quality Dining, Inc., Grayling Corporation, Bluewater Grille, LLC, Grady’s American Grill Restaurant Corporation, Bravogrand, Inc., Full Service Dining, Inc., and Southwest Dining, Inc.

Companies: Quality Dining, Inc.; Grayling Corporation; Bluewater Grille, LLC; Grady’s American Grill Restaurant Corporation; Bravogrand, Inc.; Full Service Dining, Inc.; Southwest Dining, Inc.; Visa Inc.; Visa U.S.A., Inc.; Visa International Service Association; MasterCard Incorporated; MasterCard International Incorporated

News: Antitrust NewYorkNews