The Justice Department may be slowing its antitrust investigation of MasterCard and Visa.
After eight months of effort by 15 staff members, the department is believed to be closing in on a conclusion that could result in a lawsuit or other regulatory action against the bank-owned card associations.
But sources in frequent contact with antitrust division staff members have gotten the impression that even as the stakes in the probe seem to be climbing, the end of the process is not in clear sight.
The government lawyers have reportedly broadened their focus, which may have slowed their momentum. No longer just examining the rules that prohibit MasterCard and Visa members from issuing the cards of American Express Co. and Dean Witter, Discover & Co., the investigators are revisiting the thorny issue of credit card duality. as they are today, to belong to both Visa and MasterCard.
Highly controversial since it began in the 1970s, duality describes' banks ability to belong to both MasterCard and Visa, and hence sell both brands of cards. Many legal experts have long looked warily at duality, concerned that it created a "de facto monopoly" that violates the pro- competition principles of the antitrust statutes.
With the American Express-Discover issue on the table, the Justice Department is said to be weighing whether to dismantle duality-an action that would rock the card industry to its core.
However, the enormous expense of forcing banks to choose between the card brands, not to mention the inevitable resistance from bankers, appears to have stalled the investigation and created more uncertainty about what action, if any, the antitrust division will finally recommend.
People on the banking side argue that antitrust investigators have trod this ground before, without seeing any need for action. If this view prevails, the bankers hope to put this investigation to rest, too.
It was sparked last year by complaints from American Express that a Visa bylaw-and by extension a similar MasterCard rule-illegally blocked banks from entering into marketing partnerships with Amex. Sources say the Justice Department agrees in theory with American Express.
"The easy thing to do would be to ask (Visa and MasterCard) to repeal their bylaws," said an observer, one of many who agreed to speak for this article only when assured of anonymity. "But Justice is wrestling with whether there is a broader problem, like aspects of duality."
If there is a competitive problem in the credit card arena, "duality seems to be the culprit," said David A. Balto, a Federal Trade Commission attorney and adviser to FTC Chairman Robert Pitofsky.
In an article in the February Journal of Retail Banking Services, an American Banker affiliate, Mr. Balto contended that duality inhibits competition between the bank card brands.
Mr. Balto, who has written extensively on antitrust implications in payment systems, said the overlapping nature of MasterCard's and Visa's memberships encourages the associations to develop nearly identical products, in effect constraining innovation.
Also, Mr. Balto maintained, there is almost no competition between the associations in the United States on the fees retailers pay banks to process card transactions. Merchant fees tend to be lower in countries like Canada where duality does not exist.
In a book titled "The Law of Electronic Fund Transfer Systems," Donald I. Baker and Roland E. Brandel wrote that the tortured history of duality began in 1971, when a Visa (then BankAmericard) issuer challenged an association bylaw that prevented members from issuing both Visa and MasterCard (then Master Charge) cards.
Worthen Bank and Trust Co. of Arkansas filed an antitrust lawsuit against Visa (then National BankAmericard Inc.), but the case was settled out of court, yielding no definitive ruling.
In 1974 Visa asked the Justice Department's antitrust division to review and approve an expanded version of the anti-duality bylaw. After a year the department declined to approve, and shortly thereafter Visa relented and allowed its members to join MasterCard.
The Justice Department may now be awkwardly trying to reverse its historical position.
Its investigation may also be delayed by politics, sources add.
The antitrust division is headed by Joel I. Klein, acting assistant attorney general, who was nominated by President Clinton a couple of weeks ago to permanently succeed Anne Bingaman in the post she vacated last October. Confirmation hearings have not been scheduled, and some lawyers speculate that Mr. Klein may not want to do anything controversial before winning congressional approval.
"Klein will be very conservative about what he does until he is confirmed," said a former government official, who asked to remain anonymous. "If he drops the investigation, he is subject to criticism. The safest thing for him to do is prolong the investigation until he is confirmed."
"A case dealing with duality would be a big one, and someone in Joel Klein's situation might want to hold it off until after the confirmation process," said Donald I. Baker of Baker & Miller, Washington. He was assistant attorney general for antitrust in 1976 and 1977, after the duality issue first surfaced.
A Justice Department spokeswoman said Mr. Klein would not comment on a pending investigation.
Mr. Klein served in the White House as deputy counsel to President Clinton from 1993 to 1995, after the death of Vincent Foster. Aside from his being a part of the administration during the investigation into Mr. Foster's suicide, Mr. Klein's confirmation is not seen as particularly controversial.
Visa officials believe the Justice Department will conclude its investigation by mid-April.
In the meantime, sources say the department is monitoring two other actions against Visa and MasterCard that raise competitive issues.
Advanta Corp., the eighth-largest card issuer, is suing both associations over the right to offer a credit card called Rewards Consolidator. The associations late last year ordered Advanta to discontinue marketing the card, because it is offered in conjunction with an American Express rewards program.
In its lawsuit, Advanta said Visa's and MasterCard's' "current threats against Advanta all are intended to preclude or inhibit competition by outlawing forms of commerce with American Express."
Advanta said it spent more than $3.8 million developing the product, money it cannot recover if it can't market Rewards Consolidator.
Opening arguments in the Advanta case are set for April in U.S. District Court for the Northern District of California.
The other antitrust case against MasterCard and Visa was brought by a group of major retailers including by Wal-Mart Stores Inc. and Sears, Roebuck and Co., along with retailing trade associations. The stores claim the card organizations unfairly force them to accept debit cards along with-and on similar terms as-MasterCard and Visa credit cards.
