Justice Department takes on Visa, MasterCard
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NEW YORK (CNN) -- The Justice Department takes on credit card giants Visa and MasterCard in federal court Monday, claiming the two companies are really one entity, which abuses its monopolistic power.
Of the nearly 500 million credit cards in circulation in the United States, about 75 percent of them carry the Visa or MasterCard logo.
The Justice Department's antitrust lawsuit contends that the two companies are operating what is known as a "duality," in which the approximately 7,000 banks that operate both associations engage in collusion, stifling competition and limiting consumer choices.
"This is essentially a battle for the control of the American payment
system," said Lloyd Constantine, a New York lawyer who is representing
4 million retailers, including WalMart, the Limited, and Sears Roebuck,
in a separate class-action lawsuit against the two companies.
Justice claims competition is stifled
"If the Justice Department's case fails, all payments -- not just plastic payments -- but recurring payments, utilities, everything, will be taxed by a cartel known by two names: Visa and MasterCard," Constantine said.In the case to be heard Monday by District Court Judge Barbara Jones, Justice Department lawyers will try to show that there is little or no competition between Visa and MasterCard, and that the two have adopted rules and policies that restrict member banks from doing business with other credit card companies like American Express and Discover.
The chairman and CEO of American Express testified on the matter before a Senate committee in May.
"The penalty for any bank that decides to issue cards on the Discover or American Express networks is severe," Harvey Golub said May 25. "Visa and MasterCard rules are clear. They will throw banks out of their network, thus having the effect that banks must exit the retail banking business."
Lawyers for Visa and MasterCard disagree that the competition is stifled.
Card companies: there are alternatives
"There are thousands of different card products, some are offered with low interest rates, some are offered with no fees, some are offered with a cash rebate," said Visa/MasterCard lawyer Kevin Arquit.The federal complaint says the same large banks control both associations, by "simultaneously serving on the board of directors of one, and on important committees of the other... (which) has substantially lessened competition between Visa and MasterCard because these banks have been, and continue to be... less willing to fund and implement competitive initiatives that would cause consumers to switch their business from one association to the other."
Such practices limit consumer choice and stifle innovation, the complaint says.
"If the Justice case wins, there will be lower interest rates, more product offerings, and more innovation for consumers," Constantine said.
"One big issue now is Internet security for credit cards, but rather
than try to make it safer, they (Visa and MasterCard) are stifling new
advances in that area."
Canadian market 'years ahead'
He cited Canada's market for debit cards and stored-value, or pre-paid, cards which is "years ahead of the U.S. in terms of technology.""(Visa and MasterCard's) rules marginalize American Express and Discover/Novus in the credit card market, ousts them from the debit card market, and ousts them from the stored-value market," he said.
Constantine predicted the case could take eight to 10 weeks to play out.
His class-action suit will go to court in November. That case also claims monopolistic abuses, but differs from the Justice Department case in that retailers are suing because Visa and MasterCard force them to pay for debit card transactions at the same rate as credit card purchases, even though debit card purchases carry less risk of non-payment.
The Justice Department's last antitrust case was against Microsoft. A federal court found the company was a monopoly, and in May ordered it split in two.
