Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Wal-Mart seeks declaratory judgment in debt credit processing suit, (May 11, 2016)

By Linda O’Brien, J.D., LL.M.

Global retailer Wal-Mart is seeking a declaratory judgment as to whether payment card network Visa can require the retailer to verify debt transactions with customer signatures, rather than the more secure chip-and-pin method, in order to reduce competition and increase its profits, according to a complaint filed in the New York Supreme Court in New York City (Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., May 10, 2016).

Wal-Mart’s suit follows other litigation between the retailer and Visa over the fees paid yearly to process payment card transactions. In 1996, Visa settled class action antitrust litigation filed by Wal-Mart and other retailers, which alleged Visa and MasterCard created an unlawful tying arrangement by requiring merchants that accepted their credit cards to accept their debit cards as well (In re Visa Check/MasterMoney Antitrust Litigation, 297 F. Supp. 2d 503 (2003)). In 2012, a new set of lawsuits was filed, claiming Visa and MasterCard conspired with their member banks to impose excessive interchange fees and competitive restraints associated with debit and credit card transactions (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720 (2012)), which Visa also settled. Wal-Mart opted out of the settlement, filing a separate suit for damages, which was later settled for an undisclosed amount.

Debit cards were introduced to allow consumers to withdraw cash or perform other banking activities at automated teller machines (ATMs), the complaint alleges. They have evolved into a method to pay for goods and services and are an increasingly popular form of payment. Consumers using debit cards can authenticate their identities in one or two ways: either by entering a personal identification number (PIN) or by signing a paper receipt or an electronic panel at a point-of-sale terminal (POS).

According to the complaint, the PIN verification is significantly more secure and less prone to fraud than signature verification, since signatures can be forged and cashiers may not check the signature on a receipt or POS terminal to ensure that it matches the signature on the debit card. Based on data for each year from 2004 to 2010, the fraud rate for debit card transactions verified with a signature was far higher than the rate of debit card transactions verified by a PIN. A 2013 Federal Reserve Board study found that PIN debit card transactions had the lowest estimated fraud rates by both number and value.

The method of cardholder verification also has significant consequences for how debit card transactions can be routed across payment card networks, Wal-Mart claims. If a cardholder uses a signature to verify his or her identity, the transaction will be routed across only one signature network option. However, merchants that require PIN verification can route transactions across multiple networks. Visa and MasterCard networks are the only significant signature debit networks and, between them, account for essentially all U.S. signature debit transactions and dollar volume. Additionally, interchange fees vary among PIN debit networks in part because merchants have routing choices and networks must compete for their business, the complaint states.

Wal-Mart is the largest retailer in the United States and debit cards are the most frequently used payment option in Wal-Mart stores, the complaint alleges. Since 2010, Wal-Mart has advocated for PIN verification, as opposed to signature verification, for debit transactions due to PIN’s demonstrated superior security and lower cost. In November 2015, Wal-Mart introduced a chip-and-PIN protocol in some of its U.S. stores in order to ensure more secure customer verification as well as to save money by routing transactions over less expensive PIN networks.

Chip-and-PIN protocol is consistent with global best practices for fraud prevention and enables Wal-Mart to route transactions across PIN debit networks. However, Visa has attempted to restrict competition by requiring Wal-Mart to use signature verification for certain debit card transactions in order to ensure the debit card transactions would be routed over Visa-owned networks, the complaint claims.

The plaintiff seeks declaratory relief, costs of suit, attorney fees, and any other just and proper relief.

The Case is No. 652530/2016.

Attorneys: Neal Manne, Drew D. Hansen, and Arun Subramanian (Susman Godrey L.L.P.), Jeffrey Shinder (Constantine Cannon LLP), and Douglas S. Kantor and Michael Dockterman (Steptoe & Johnson LLP) for Wal-Mart Stores, Inc.

Companies: Wal-Mart Stores, Inc.; Visa U.S.A. Inc.

News: Antitrust NewYorkNews